
Class _HJj^3j 



Book 



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Copyright^ . 



i 906 



COPYRIGHT DEPOSIT. 



Practical Law 



A treatise on Business Law especially 
compiled for schools that teach Ac- 
counting, Business Practise, Office 
Methods and kindred subjects : : : : 



ByBURRITT HAMILTON 



UkWLI91$AFtY 
OF CONGRESS 




ELLIS PUBLISHING COMPANY 

Battle Creek, Michigan 
1906 



JUBRARY of CONGRESS 

Two Cnole? Received 

AUG 8 t906 
/7Cop#ne>' Entry 

-hsiffCL xxc, no, 

COPY B. ' 



Copyright 1906 

BY 

Ellis Publishing Company 



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PREFACE 



We publish this volume in response to a demand for an 
elementary law book dealing with present-day business prac- 
tically. We employed a busy lawyer and instructed him to 
write out of his experience. The result is a radical departure 
from hackneyed lines — a live, new book. 

Everything, except accuracy, has been sacrificed to clearness 
and utility. This volume is doubly useful. As a terse text- 
book, illustrated by actual cases, it will commend itself to both 
teacher and student. As an authoritative statement of legal 
principles, forms and precedents, it will be found of great 
service in the hands of the man of affairs. 

The aim of this book is not toward technical legal instruc- 
tion. It tells how to do things. Its purpose is to aid men and 
women to transact business safely. Moreover, by citing scores 
of actual cases, it shows how the highest courts all over this 
land apply the law to facts. 

The many recent changes in the law of Negotiable Instru- 
ments alone, would have warranted this timely publication. 
But the merit of the book — its scope, its clearness, its originality 
of treatment — are the stronger reasons for which we commend 
it to our patrons. 

THE PUBLISHERS. 



in 



TABLE OF CONTENTS 



DEFINITIONS OF LEGAL TERMS Page x 

EXPLANATIONS Page xv 

INTRODUCTION Page i 

Practical law. — Purposes of law.— Study of law. — Natural 

Justice. — Statute law. — Constitutionality. 

THE WANT OF DUE CARE CHAPTER I 

Importance of the subject. — Special cautions. — Negligence. — 
Penalty of negligence. — Care in one's own acts. — Contributory 
negligence. — Proximate and remote causes. — Negligence in 
executing written instruments. 

PROPERTY CHAPTER II 

Kinds of Property. — Right to use property. — Right to defend 
property. — Trover and replevin. — Title to property lost and 
found. — How one may be deprived of property. — Destruction 

of property. Capture by enemy. — Seizure under process. — 

Prescription. — Adverse possession. 

CONTRACTS CHAPTER III 

Importance of subject. — Meaning of "Enforcible." — Classes of 
contracts. — Forms of contracts. — A simple contract. — Testing 
a contract. 

AGREEMENT CHAPTER IV 

When agreement occurs. — Difference between agreement and 
contract. — How agreement is attained. — Offer. — Acceptance. — 
Revocation. — Cancellation of orders. — Offer, acceptance and 
revocation by mail and telegraph. 

MAKING AND EXPRESSING THE AGREEMENT, CHAPTER V 
Two dangers. — Improper time. — Contracts improperly ex- 
pressed. — Contracts which cannot be performed within one 
year — Contracts to pay the debt of another. — Contracts made 
in consideration of marriage. — Contracts for the sale of any 
interest in land. — Standing timber. — Contracts for the sale of 
personal property. — Contracts for services. — Payment and 
delivery.— Putting the contract into writing. — Contents of mem- 
orandum. — Signing the memorandum. — Signing by agent. 

v 



VI PRACTICAL LAW. 

COMPETENCY OF PARTIES CHAPTER VI 

Incompetent parties. — Infants. — Necessaries. — Disaffirmance. — 
Return of property. — Fraud of infant. — Lunatics and drunken 
persons. — Bad faith. — Necessaries. — Lunatics under guardian- 
ship. — Duress. — Contracts of married women. — Necessaries. 

CONSIDERATION CHAPTER VII 

The meaning of consideration. — Absence of consideration. — 
Good considerations. — Money and things of value. — Mutual 
promises. — Acts and forbearances. — Natural love and affec- 
tion. — Valuable consideration. 

CERTAINTY AND LEGALITY OF OBJECT. ... .CHAPTER VIII 
Certainty. — Illegal contracts. — Contracts in violation of law. — 
Contracts contrary to public policy. — Illegal contracts. — Con- 
tracts in restraint of trade. — Contracts stifling competition. — 
Contracts to influence public officials. — Gambling contracts. — 
Marriage brokerage. — Usurious contracts. — Contracts for im- 
moral purposes. 

CONSTRUCTION OF CONTRACTS CHAPTER IX 

Words. — Clerical errors. — Double construction. — Satisfaction. — 
Negative contracts. — Reasonable time. — Contracts partly writ- 
ten and partly printed. — Writing not varied by parole. — The 
law of place. 

TERMINATION OF CONTRACTS CHAPTER X 

How contracts are terminated. — Performance. — Impossibility 
of performance. — Substitution. — Cancellation. — Rescission.— 
Fraud. — False representations. — Opinion. — Expert opinion. — 
Mistake. — Mutual mistake. — Breach of contract. — Breach of 
implied contract. — Inducing persons to break a contract. — Limi- 
tation. 

DEFENSES AGAINST CONTRACTS CHAPTER XI 

Defenses. — Merger. — Alteration. — Forgery. — Discharge in bank- 
ruptcy. — Statute of limitations. 

PRINCIPAL AND AGENT CHAPTER XII 

The relation. — Kinds of agents. — General agents. — Special 
agents. — Conferment of authority. — Ratification. — Authority to 
collect. — Duty of agent. — Liability of agent. — Signature of 
agent. — Termination of agency. — Termination by limitation. — 
Termination by revocation. — Termination by insanity. — Ter- 
mination by bankruptcy. — Termination by death. — Disregard of 
instructions. 

PARTNERSHIP CHAPTER XIII 

The relation. — Classes of partners. — Creation of partnership. — 
Kinds of partnership. — Trading partnerships. — Firm bound, 



TABLE OF CONTENTS. VII 

though funds misappropriated.— Non-trading partnerships.— 
Good faith. — Suits by partners. — Sharing profits and losses. — 
Compensation.— Dissolution. — Notice of dissolution. 

THE EMPLOYMENT OF LABOR CHAPTER XIV 

The relation.— Duty of master. — Safe premises. — Safe appli- 
ances. — Warning of extraordinary danger. — Care in selecting 
servants. — Assumed risks. — Negligence of fellow servants. — 
Contributory negligence. — Payment of servant. — Duty of 
servant. — Discharge. — Wrongful discharge. 

.CARRIERS CHAPTER XV 

Classes of carriers. — Liability of private carriers. — Liability of 
common carriers. — Act of God. — Loss or destruction of 
goods. — Loss from natural causes. — Limitation of liability. — 
Loss on connecting line. — Liability for its own negligence. — 
Stipulation as to value. — Rules. — The bill of lading. — Draft 
with bill of lading. — Discrimination in rate. — Stoppage in 
transitu. 

SALES OF PERSONAL PROPERTY CHAPTER XVI 

Sale. — Title. — Bill of sale. — Requisites of sale. — Change of 
ownership. — Sales for cash. — Sales on credit. — Condition unper- 
formed by vendor. — Delivery to vendee. — Consigned goods. — 
Express reservation of title by vendor. — Inspection of goods. — 
Latent defects. — Quality of goods. — Purchase by particular 
description. — Warranty of fitness. — Warranty of food. — War- 
ranty in sales by sample. — Fraud in sales. 

SALES OF REAL ESTATE CHAPTER XVII 

Sales of real estate. — Land options. — Form of option. — Land 
contracts. — Form of land contract. — Parties to land contract. — 
Recording. — Forfeiture. — Deeds. — A certain quantity, "more 
or less." — Examination of title. — Warranty Deeds. — Quit claim 
deeds. — Consideration. — Execution and delivery. — Delivery. — 
Return of unrecorded deed. — Estates by entireties. — Execution 
of deeds in blank. — Recording. 

LANDLORD AND TENANT CHAPTER XVIII 

Lease. — Duties of landlord. — Renewal. — Repairs. — Rent. — 
Notice to quit. — Reentry of landlord. — Destruction by fire. — 
Assignment of lease. 

BANKING CHAPTER XIX 

Banks. — General deposits. — Presentation of check. — Stoppage 
of payment. — Check not an assignment. — Certified checks. — 
Forged checks. — Returned checks. — Special deposits. — Set off. — 
Instruments payable at bank treated as checks. — Overdrafts. — 
President. — Vice-president. — Cashier. — Powers of directors. — 
Liabilities of directors. — Collections. 



VIII PRACTICAL LAW 

COMMERCIAL PAPER CHAPTER XX 

Classes of paper. — Negotiable instruments. — Advantages of 
negotiability. — Holder in due course. — Transferee of holder in 
due course. — Persons not holders in due course. — Reason for 
protecting holders in due course. — The negotiable instruments 
law. — Bills of exchange. — Promissory notes. 

THE LEGAL HISTORY OF A BILL OF EXCHANGE 

CHAPTER XXI 

Issue of bill. — Parties to the bill. — Presentation and accept- 
ance. — Maturity. — Dishonor by non-payment. — Protest. — Notice 
of Dishonor. — Discharge for want of notice. — Settlements after 
dishonor. 

THE LEGAL HISTORY OF A PROMISSORY NOTE 

CHAPTER XXII 

Issue of note. — Indorsement in blank. — Indorsement in full. — 
Waiver of rights by indorser. — Indorsement without recourse. — 
Guaranty of payment. — Restrictive indorsement. — Dishonor 
and notice of dishonor. — Collection. — The Surety. 

NEGOTIABLE INSTRUMENTS CHAPTER XXIII 

When is an instrument negotiable. — Signing. — Payable in 
money. — Variance between words and figures. — Time of pay- 
ment. — Words of negotiability. — Certainty as to amount. — 
Additional provisions. — Antedating and postdating. — Filling 
up blanks. — Negotiation. — Parties. — Liabilities of drawer. — Lia- 
bility of drawee. — Liability of maker and acceptor. — Lia- 
bility of payee. — Liability of holders who transfer by 
delivery. — Liability of general indorsers. — Forms of indorse- 
ment. — Liability of one who indorses "without recourse." — 
Dishonor. — When presentment for acceptance must be made. — 
When presentment for acceptance is excused. — How pre- 
sentment for acceptance is made. — Acceptance. — Time for 
acceptance. — Kinds of acceptance. — General acceptance. — 
Qualified acceptance. — Acceptance for honor. — Necessity of 
presentment for payment. — Waiver. — Implied waiver. — Pre- 
sentment for payment. — Instrument must be shown. — Protest. — 
Contents of certificate of protest. — Summary of omissions 
which discharge drawers and indorsers. — Sureties. — Guaran- 
tors. — Material alteration. — Forgery of signature. — Usury. — 
Bonuses. — Payment of interest in advance. 

LOANS, CREDITS AND COLLECTIONS CHAPTER XXIV 

Loans. — Security. — Suretyship. — Indorsement. — Indemnity 
bonds. — Guaranties. — Mortgages. — Real estate mortgages. — 
Form of real estate mortgage. — Chattel mortgages. — The in- 
security clause. — Permission to sell. — The mortgage note. — 
Description of mortgaged property. — Foreclosures. — Sale. — 



TABLE OF CONTENTS. IX 

Deficit and surplus. — Rights of purchaser. — Redemption. — 
Subrogation. — Dual mortgages. — Deeds operating as mort- 
gages. — Deed with contract to reconvey. — Bill of sale given as 
security. — Assignment of mortgage. — Pledges. — Pledges of cor- 
porate stock. — Foreclosure of pledge. — Liens. — Vendors' liens — 
Workmen's liens. — Liens of carriers and others. — Liens by 
attachment. — Garnishment. — Judgment liens. — Exemptions. — 
Tender. — Legal tender. — Objections to tender. — Exact amount 
must be tendered. — Tender must be kept open for acceptance. — 
Tender admits debt. — Payment. — Payment to wrong person. — 
Accepting notes, checks and orders in payment. — Voluntary 
payment. — Compromise. — Accord and Satisfaction. — Applica- 
tion of payments. — Collection of debts. — Procedure in collect- 
ing. — Collection of "outlawed" claims. — When does the statute 
become operative. — Suspension of statute. — Limitation with- 
draws remedy. — Renewal. — Unauthorized application no re- 
newal — Written acknowledgment. — Assignments for benefit 
of creditors. — Bankruptcy. — Who may become bankrupts. — 
Acts of bankruptcy. — Insolvency. — Discharge. — Debts first 
paid. — Uses of bankruptcy. 

CORPORATIONS CHAPTER XXV 

Characteristics. — Corporations compared with partnerships. — 
Charter. — Name. — Capital stock and shares. — Payment for 
stock. — Location. — Powers and purposes. — Subscriptions and 
payment thereof. — Duration. — Incorporators. — Recording arti- 
cles" of association. — By-laws. — Preliminary investigation. — 
Kinds of stock. — Voting powers. — Cumulative voting. — Proxies. 
— Transfers of stock. — Powers and duties of officers. — Direc- 
tors. — President. — Vice-president. — Secretary. — Treasurer. — 
Salaries of officers.— Annual reports. — Receivers. — Dissolution. 

STATUTE OF FRAUDS Table A. 

CONTRACTUAL POWERS OF MARRIED WOMEN.... Table B. 

INTEREST AND USURY Table C. 

STATUTES OF LIMITATIONS Table D. 



DEFINITIONS OF LEGAL TERMS 



These definitions apply to words and expressions used in 
this book and not elsewhere herein defined. Their mastery at 
the outset will materially assist the student in understanding 
the statements and illustrations which follow. 



Abatement, a reduction. 

Acceptance, an accepted bill; also, the act of accepting a 
bill. 

Acceptor, one who accepts a bill. 

Accord and Satisfaction, a settlement by compromise. 

Acknowledgment, admission of the execution of a writing, 
made before a proper officer. 

Action, a suit brought in a court of justice. 

Adjustment, settlement of a claim. 

Adjudication, the giving of judgment. 

Administrator, one who settles an estate. 

Administration, the act of settling an estate. 

Adverse Possession, visible, open, notorious and hostile 
occupancy of real estate claimed by another. 

Affirm, to ratify. 

Alimony, an allowance made to a wife out of her husband's 
estate for her support during or after divorce proceedings. 

Appurtenance, an adjunct, an appendage; a thing which 
goes with something else, as a fence goes with a farm. 

Assignment, a transfer of ownership in property. 

Assignee, one to whom an assignment is made. 

Assignor, one who makes an assignment. 

Bill, a bill of exchange. 



DEFINITIONS OF LEGAL TERMS. XI 

Blank, an incomplete legal instrument. When a signature 
is affixed to an incomplete legal instrument, the document is 
said to be "signed in blank." 

Bona fide, in or with good faith. 

Chattel, an article of personal property. 

Check, an order drawn upon a bank for the payment of 
money. 

Claim, a bill or account receivable, a demand. 

Collateral Security, security in addition to the personal 
obligation of the party bound. 

Collusion, a secret agreement between two parties designed 
to violate some third party's rights. 

Competency, proper ability. 

Consideration, the thing given or forborne to induce an 
act or forbearance on the part of another. 

Construction, the act of determining the meaning of lan- 
guage used. 

Contractual, relating to contract. 

Conveyance, the transfer of title to land. 

Counsel, one who gives advice in matters of law. 

Covenant, a lawful promise. 

Curtesy, a husband's conditional life estate in the lands of 
his wife. (This estate is generally abolished.) 

Damages, pecuniary compensation awarded for a loss or 
injury. This word is to be distinguished from the word 
"damage" which refers to the loss or injury itself. 

Decree, the judgment of a court. 

Deed, the* written instrument by which property is con- 
veyed. 

Defalcation, a breach of trust by misappropriation of funds. 

Default, omission to perform a promise or obligation. 

Defendant, the person against whom suit is brought. 

Determinable, capable of being ascertained or determined. 

De facto, in fact; actually but not legally. 

De jure, in law ; legally as well as actually. 

Diligence, attentiveness. 

Disaffirm, to repudiate. 



XII PRACTICAL LAW. 

Dishonor, refusal to accept a bill, or refusal or neglect to 
pay a bill or note at maturity. 

Domicile, a person's fixed place of abode. 

Embezzlement, the fraudulent appropriation of property 
by one to whom it has been entrusted. 

Equity, justice, natural right judicially administered. 

Escrow, a deed held by a third person for delivery to the 
grantee on performance of some condition. 

Estate, one's property. 

Et al., an abbreviation for et alii, meaning "and others." 

Execution, completion, as the signing, sealing and delivery 
of a deed. The word is also the name of a writ commanding a 
sheriff, or other officer, to seize and sell property to satisfy the 
judgment of a court. 

Executor, a person appointed to perform the provisions 
of a will. 

Fee simple, an absolute, inheritable title in land. 

Filing, depositing a paper with a proper officer to be kept 
for public reference. 

Firm, a copartnership. 

Forfeiture, a penalty for an act or omission. 

Grant, a transfer by deed. 

Grantor, one who makes a grant. 

Grantee, one to whom a grant is made. 

Guaranty, a promise to answer for the debt or default of 
another. 

Guarantee, one to whom a guaranty is made. 

Guarantor, one who makes a guaranty. 

Heir, one who inherits by right of relationship. 

Holder in Due Course, one who gives value for negotiable 
paper, in good faith, before maturity and without actual or 
constructive notice of defects. 

Implied, necessarily deduced from surrounding circum- 
stances. 

Indemnity, a contract to protect another against loss. 

Instrument, a written document. 

In toto, wholly, completely. 



DEFINITIONS OF LEGAL TERMS. XIII 

Joint, united, combined. 

Judgment, the official decision of a suit. 

Judicial, of or proceeding from a court of justice. 

Jurisdiction, the right to hear and decide matters in litiga- 
tion. 

Lease, a contract for the possession of real estate in con- 
sideration of rent. 

Lessee, one to whom a lease is made. 

Lessor, one who makes a lease. 

Levy, a judicial seizure. 

Liability, legal responsibility. 

Libel, written defamation. 

Lien, a claim upon the property of another for some debt 
or charge. 

Limitation, a restriction. 

Liquidated, ascertained, fixed, certain. A liquidated claim 
is one the amount of which is certain. 

Liquidation, the act of "winding up" or closing the affairs 
of a concern; making settlement. 

Litigation, a contest in court. 

Majority, more than half; also, full legal age. 

Maturity, the date upon which an obligation falls due. 

Misappropriation, a fraudulent misapplication of funds. 

Nominal, in name only. 

Obligation, a legal duty. 

Obligee, one to whom an obligation runs. 

Obligor, the person under obligation. 

Offeree, one to whom an offer is made. 

Offerer, one who makes an offer. 

Par Value, a value equaling an instrument's face value. 
Thus the par value of a stock certificate is a value equaling the 
certificate's face value. 

Paramount, superior. 

Parol, verbal. 

Payee, one to whom payment is to be made. 

Payor, one who is obligated to make payment. 

Plaintiff, a party who brings suit. 



XIV PRACTICAL LAW. 

Prescription, title acquired through long enjoyment or use. 

Process, the writs by which suits are commenced. (See 
writ.) 

Proximate, immediate, nearest. 

Ratification, the adoption of an act. 

Recording, spreading a copy of an original instrument 
upon the records kept in a public office. 

Remedy, the means by which the violation of a right is 
prevented, redressed or compensated. 

Revocation, withdrawal. 

Said, before mentioned. 

Set-off, a counter-claim. 

Spouse, a man or woman joined in wedlock. 

Suit, a law suit. 

Surety, a joint obligor who, in case he makes payment, is 
entitled to indemnity from some other person who ought him- 
self to have made the payment. 

Tender, an offer of the thing which the offerer is obligated 
to deliver. When money is due, the tender must be of money. 

Title, the means whereby a person's right to property is 
established. 

Third parties, persons collaterally interested ; persons other 
than the original parties to a contract or other instrument. 

Transferor, one who makes a transfer. 

Transferee, one to whom a transfer is made. 

Ultra vires, beyond power. 

Writ, the formal written command of a court requiring an 
act or forbearance. 



EXPLANATIONS 



The illustrations used to show the practical application of 
the principles of law stated in this book are taken from actual 
cases decided by appellate courts. Abbreviations and neces- 
sarily used. Thus, "Dartmouth College v. Woodward, 4 
Wheaton (U. S.), 518," means "The case of Dartmouth Col- 
lege against Woodward, beginning at page 518 of the 4th 
volume of Wheaton's United States Supreme Court Reports." 

So "Powers v. Harlow, 53 Mich. 507," means "The case 
of Powers against Harlow, decided by the Supreme Court of 
Michigan and reported, beginning at page 507 of volume 53 of 
the Supreme Court Reports of Michigan." 

In like manner 88 Ga. 40 refers to a decision by the Su- 
preme Court of Georgia, beginning at page 40 of volume 88 
of the reports of that court. 

The highest state court in New York is the Court of 
Appeals, so Laidlaw v. Sage, 158 N. Y. J2> refers to a decision 
rendered by the New York Court of Appeals. 

If the student has, or can obtain, access to a complete law 
library, he may read for himself, in all its interesting details, 
the full story of each case cited. 



xv 



Practical Law. 



INTRODUCTION. 

i. Practical Law. — By Practical Law we mean the rules 
of conduct governing ordinary business affairs. Knowledge 
of these rules is necessary to safe dealing. It is the legal duty 
of every person to know the law. Ignorance of law cannot be 
used as an excuse. Were this not so, the vicious might gain 
protection by remaining uninformed. 

2. The Purposes of Law. — In the business world, law 
establishes order by providing uniform rules of commercial 
conduct. Law protects property by defining the rights of the 
owner. Law protects rights by forbidding, punishing and 
redressing wrongs. 

3. The Study of Law. — No one can become accomplished 
in the transaction of business without first having mastered 
the principles by which business is governed. To-day, business 
men are generally educated. The uninformed are at a disad- 
vantage. They are prone to overlook necessary precautions. 
Through want of proper care they frequently find themselves 
the victims of errors, deceptions, legal entanglements and loss. 
Under modern conditions, knowledge of practical law is as 
useful as knowledge of arithmetic. Nor is it more difficult of 
attainment. Law is mainly common sense. Every law rests 
upon some reason. When we have grasped the reason we 
know the law. 

4. Natural Justice. — The law attempts to enforce what is 
right between man and man, ever keeping in mind the public 
welfare. When the interests of individuals conflict with public 
rights, the rights of the public will prevail. The rights of the 
many are superior to the interests of the few, 



2 INTRODUCTION. 

The common law consists of the principles of natural jus- 
tice. It exists without legislative act, and derives its name 
from the fact that it is common to the whole country. When 
courts are called upon to decide a matter to which no statute 
applies, they base their decision upon the common law. In 
this they are aided, and to some extent guided, by prior de- 
cisions called "precedents," rendered in cases involving the 
same or similar facts. 

5. Statute Law. — When laws are reduced to written form 
by legislative enactment, they are called "statutes." The value 
of statutes consists in their certainty. Courts and people may 
differ in their views of what constitutes natural justice, but 
there is less likelihood of doubt about the meaning of a printed 
page. 

Occasionally several states pass identical laws on some sub- 
ject of general interest. Thus, at this time (1906) thirty states 
have adopted a uniform code known as "The Negotiable Instru- 
ments Law." Into this code have been gathered the rules that 
have grown up through centuries of practical experience and 
adjudication. 

The tendency of the states is toward greater harmony in 
legislation. At present the laws are in confusion. Of necessity 
this is a book of general principles. It is intended for use in 
all states. The statutes and court decisions of the several states 
differ. The student should refer to the laws of his own state 
for that precise local information which the scope of this book 
forbids. 

6. Constitutionality. — In the language of Abraham 
Lincoln, this is a "government of the people, by the people 
and for the people." This government derives all of its powers 
from the consent of the governed. This consent is given, 
primarily, through the constitution of the United States, which 
is "the supreme law of the land." So the constitution of each 
state is the supreme law of that state. It follows that any 
transgression of the governing constitution, whether state or 
national, is a violation of the will of the people, and must there- 
fore fail. Laws in conflict with their governing constitution 



INTRODUCTION. 3 

are void. They are termed ''unconstitutional." They are of no 
force for any purpose whatsoever. 

Illustration. — The constitution of the United States provides 
that, "No state shall .... pass any .... law impairing the obligation 
of a contract." The charter of a corporation is a contract between the 
corporation and the state. In 1816 the legislature of New Hampshire 
enacted a statute in which it attempted to impair the charter of the 
Dartmouth College corporation. The supreme court of the United 
States decided that the impairing statute was unconstitutional, and 
therefore void. 

This case was argued by Daniel Webster and decided in an opinion 
prepared by Chief Justice Marshall. It is known as "the Dartmouth 
College case" and is one of the most famous cases in American juris- 
prudence. 

Dartmouth College v. Woodward, 4 Wheaton (U. S.), 519. 



CHAPTER I 



THE WANT OF DUE CARE. 

7. Importance of the Subject. — We place this sub- 
ject first because of its supreme importance. Nearly all misun- 
derstandings, disagreements and lawsuits arise through some- 
one's want of due care. A signature is affixed to an unread 
instrument; a bill is paid without requiring a receipt; a check 
is recklessly drawn; an investment is improvidently made; a 
loan is granted upon insufficient security; a fire is so set out 
that it reaches and destroys a neighbor's property ; an employee 
is needlessly sent into a place of exceptional danger — and 
damage results. What was at the root of the trouble? The 
want of due care. 

We often see, posted at railroad crossings, the words, 
"Stop! Look! Listen!" Whoever crosses without first obey- 
ing the spirit of this warning is guilty of legal negligence. 
There are no warnings posted at the dangerous crossings on the 
highway of business life, yet the words of the railroad signboard 
hold true. It is negligence to fail to stop and look and listen 
at danger points. Precipitate haste has ruined hundreds where 
it has profited one. If in doubt, seek competent counsel. If 
still in doubt, sacrifice time and profit to safety. We would 
have you alert in the avoidance of danger ; not timid, but intelli- 
gently cautious ; not prudish, but prudent. The accumulation 
of wealth depends upon the preservation of profits. The reten- 
tion of wealth depends upon the avoidance of losses. 

"We pay that man $25,000 a year," said the president of a 
large corporation. 

"Indeed !" was the reply. "Then he must bring you many 
profitable transactions." 

5 



6 PRACTICAL LAW. 

"On the contrary," answered the president, "we retain him 
for the sole purpose of keeping us out of unprofitable transac- 
tions/' 

8. Some Special Cautions. 

(a) So keep and deal with your property that it cannot 
injure others. 

(b) In buying property of any kind, be sure of the seller's 
title. 

(c) In ordering goods, be explicit as to kind, quantity, 
quality, price, and time and manner of delivery. 

(d) In receiving goods, examine them promptly and report 
all discrepancies without delay. 

(e) In dealing with the agent of another, assure yourself 
of his authority. 

(f) Sign no document without first knowing its contents 
and understanding the extent of the liability that, by signing, 
you will assume. 

(g) Execute no unconsidered contract, 
(h) Assume no indefinite obligation, 
(i) Before investing, investigate. 

(k) Exercise the utmost caution in selecting business asso- 
ciates. In the words of Jefferson: "Avoid entangling alli- 
ances." 

These rules are merely broad and practical applications of 
the principles of due care. 

9. What is Due Care. — Due care is such caution as a 
prudent person would use under like circumstances. It is "care 
according to need." It is care in proportion to danger. The 
greater the known danger, the greater the degree of care 
required. 

Illustration. — Harlow negligently caused dynamite cartridges to 
be stored in an open box in a shed frequented by children. A little 
boy found the cartridges, cracked one on a stone and was maimed for 
life. The court held that the storing of the dangerous explosive in the 
place and manner stated, constituted want of due care, and made 
Harlow answerable for the consequences. 
Powers v. Harlow, 53 Mich., 507. 



THE WANT OF DUE CARE. 7 

10. Negligence. — The want of due care is called "negli- 
gence." It may consist in an act or in an omission. It is 
neither more nor less than failure to perform a legal duty. Any 
failure to act as a prudent person might be reasonably expected 
to act under like circumstances as negligence. 

Illustration. — It is the duty of telegraph companies to correctly 
transmit and promptly deliver messages. The following message was 
sent prepaid: 

Greenville, S. C, Feb. 26, 1889. 
"To J. T. Young, Newberne, N. C. 

Come in haste ; your wife is at the point of death. 

(Signed) J. W. Rice." 
The message was received at the T'ewberne telegraph office Febru- 
ary 27th. Mr. Young was well known, and, during business hours, was 
constantly in his own office, which was but a short distance from the 
office of the telegraph company. Nevertheless, on March 5th the mes- 
sage, through the negligence of the telegraph company, remained unde- 
livered. On that day Mr. Young received a letter announcing his wife's 
death and burial. He went to the telegraph office and found the 
undelivered message. In a suit brought by him against the telegraph 
company, he was permitted to recover his nominal damages and com- 
pensation for the mental anguish which he had suffered. 

Young v. Western Union Telegraph Co., 107 N. C, 370. 

11. The Penalty of Negligence. — If my negligence 
.damages another, who is himself without fault, I must answer 

for it ; I must compensate him for his loss or injury. 

Illustrations. — (I) Parties being offered a cargo of corn at 90 
cents per bushel, delivered to a telegraph company, for transmission to 
the offerer, the following message : 

"Ship cargo named at 90." 

The message was properly addressed, but the telegraph company 
failed to deliver it. The price of corn advanced. Through the non- 
delivery of the message, the senders were obliged to buy at a higher 
price. On account of its negligence, the telegraph company was held 
liable for the loss. 

True v. International Telegraph Co., 60 Maine, 9. 

(II) Smith maintained an open hatchway in his store. There 
being no railing or other guard, Engle, without fault on his part, 
walked into the opening, fell and was injured. Smith was required to 
pay Engle $1,000 as recompense for the injury. 
Engle v. Smith, 82 Mich., 1. 



8 PRACTICAL LAW. 

(Ill) Grant owned vicious dogs which were permitted to run 
without restraint about Grant's premises. Conway entered Grant's 
yard on lawful business, was attacked by the dogs and sustained 
injuries. Grant was held answerable for the damages. 
Conway v. Grant, 88 Ga., 40. 

12. Care in One's Own Acts. — The law holds that every- 
one intends the natural and direct results of his own acts. The 
person who sets a cause of injury into motion must answer for 
the consequences. Thus, if a person start a stone to rolling 
down a steep hill, and the stone so started dislodges others, 
which, in their course downward, inflict an injury, the starter 
of the first stone must answer for the damages. 

Illustration. — A man threw a ball of burning, oily rags into a 
crowd. Several persons, to save themselves, buffeted the missile, and 
thus sent it onward in a changed course. It finally struck a person in 
the eye and injured him. The thrower of the ball was held responsi- 
ble. 

Scott v. Shepard, 2 W. Black, 392. 

13. Contributory Negligence. — The law is intended 
to aid those only who are using due care. If A is negligent 
and B is injured thereby, B must show that he was himself 
without fault. When a person's own want of care contributes 
to his injury, he cannot hold another responsible for any portion 
of the injury, for to permit him to do so would be to permit 
him to profit by his own neglect. 

Illustration. — A brakeman, whose duty it was to attend to the 
brakes on the two or three cars next following the engine, chose to 
ride on the pilot of the engine. While he was so riding, the pilot was 
wrecked by coming into collision with a rail at a point where another 
railroad crossed the defendant's line. The brakeman was seriously 
injured and brought suit against the railroad by which he was employed. 
Held, that he was not entitled to compensation for his injuries, as they 
were brought about by his own negligence in needlessly riding in the 
most dangerous place on the train. 

Warden v. Louisville & Nashville R. Co., 94 Ala., 277. 

14. Proximate and Remote Cause. — To make a person 
liable for damages, it must be shown that he is responsible for 
the thing which caused the injury complained of. If there are 
several possible causes, the law will say that the injury arose 
from the proximate, or nearest, cause. 



THE WANT OF DUE CARE. 9 

Illustration. — The following case is particularly noteworthy, not 
only as an illustration of the principle of "proximate cause," but on 
account of the fact that Joseph H. Choate and other leaders of the 
bar were engaged in the several trials of the cause, in which the well 
known New York banker, Russell Sage was defendant. 

Norcross, carrying a quantity of dynamite concealed in a carpet 
bag, was ushered into Sage's office by Laidlaw, an employee. Norcross 
handed Sage a letter which read: 

"The bag I hold in my hand contains ten pounds of dyna- 
mite. If I drop this bag on the floor, the dynamite will explode 
and destroy this building and kill every human being in it. 
I demand $1,200,000 or I will drop the bag. Will you give it? 
Yes or no?" 
On non-compliance with the demand, Norcross promptly dropped 
the bag. A terrific explosion occurred. Norcross was blown to 
pieces. The office was wrecked and nearly everyone about the office 
was either killed or seriously injured. Some time afterward, Laidlaw sued 
Sage, claiming that, at the moment of the explosion, Sage forcibly 
interposed him, Laidlaw, as a shield, or, in other words, that Sage drew 
Laidlaw between himself and Norcross at the moment Norcross 
dropped the dynamite. Laidlaw was seriously hurt. Sage escaped 
with slight injuries. In passing upon the case, the New York Court 
of Appeals held that the proximate cause of Laidlaw's injuries was the 
explosion of dynamite, and not the act of the defendant in using 
Laidlaw as a shield. There was nothing in the evidence to show that 
Laidlaw's danger^ was increased by the defendant's act. Sage was held 
blameless. 

Laidlaw v. Sage, 158 N. Y., 53. 



15. Negligence in Executing Written Instruments. — 

When a negotiable instrument, such as a check or draft, is exe- 
cuted by filling up blanks left for that purpose in a printed 
form, it is negligence to leave blanks unfilled. Heavy lines 
should be drawn through all spaces not filled by printed or 
written words or figures. If the person making the instrument 
neglects to do this, and some later holder changes the instru- 
ment by writing in larger amounts or different terms without 
defacing the paper, the negligent maker will be bound by the 
changed terms to one who, without knowledge of the altera- 
tion, afterwards acquires the instrument in due course. 

Illustration. — A note in the following form was issued, with 
unfilled blanks, as indicated : 



IO PRACTICAL LAW. 

Owosso, Sept. 27, 1890. 
On or before one year after date I promise to pay to the 

order of William Weidman one hundred dollars at . 

Value received with interest at per cent per annum. 

(Signed) John McBride, 
Geo. B. Symes. 

Without knowledge on the part of Symes or Weidman, the words 
and figures "ten (10)" were inserted in the blank preceding the words 
"per cent." On account of his negligence in failing to fill up the blank, 
whereby the alteration was made easy, Symes was held liable upon the 
note as changed. 

Weidman v. Symes, 120 Mich., 657. 



CHAPTER II 



PROPERTY. 

16. Kinds of Property. — Property includes all things capa- 
ble of individual ownership. It is divided into two great 
classes, real property and personal property. 

Real Property, or real estate, as it is usually called, consists 
of land and things attached to land. 

Personal Property includes all property other than real 
estate. 

Illustrations. — Farms, lots, permanent buildings, standing forests, 
inland lakes, unmined minerals, unharvested crops and things attached 
to real property with the intent to make them permanent improvements 
are real estate. 

Live stock, harvested crops, felled timber, tools, goods, wares, 
merchandise, household furniture, stock in companies, securities and 
money are personal property. 

17. The Right to use Property. — Everyone may use his 
own property exactly as he pleases, provided that, in so doing, 
he violates no law and injures no one else. Each person's 
rights end where another person's rights begin. To this point 
each may go, but whoever passes beyond and tramples another's 
rights thereby becomes a wrongdoer. 

18. The Right to Defend Property. — The right to retain 
and use property carries with it the right to use force in 
defending such property against those who would wrongfully 
take it away or destroy it. This right should be exercised with 
the utmost care. It must not be exercised against an officer of 
the law who is acting in his official capacity. 

When the use of force in the defense of property is allow- 
able, no more force may be used than the circumstances require. 

11 



12 PRACTICAL LAW. 

Property must not be defended by the use of dangerous 
weapons, or by slaying the wrongdoer, except in those cases 
in which the wrongdoer is perpetrating, or is attempting to 
perpetrate, a forcible felony. Thus in defense of property one 
may shoot a burglar or a robber, for their crimes are forcible 
felonies; but one is not permitted to shoot a mere pickpocket, 
because his is a crime committed, not by force, but by stealth. 

If, in defending property, one uses more force than the cir- 
cumstances require, he will be guilty of an assault. If one kills 
another in defending property when no forcible felony is being 
perpetrated or attempted, he will be held guilty of manslaugh- 
ter. 

When one has been wrongfully deprived of possession of 
his property, he may retake it wherever he can find it, pro- 
vided he is able so to do without committing a breach of the 
peace. 

19. Trover and Replevin. — When one is entitled to pos- 
session of personal property which is wrongfully withheld from 
him, he may recover its value in an action called "trover," or he 
may recover possession of the specific property itself in an 
action called "replevin." He has his choice. 

20. Title to Property Lost and Found.— When lost 
property has been found, it still belongs to its true owner, and 
not to the finder. But the finder of personal property can hold 
it as against everyone except the true owner. If the true owner 
cannot be found, the property is said to belong to the finder. 
Personal property found concealed in other personal property 
belongs to the finder, and not to the owner of the personal 
property in which the found property was concealed. But 
property found concealed in the earth belongs to the owner of 
the real estate. 

Illustrations.-A rag sorter found a sum of money concealed in 
the rags which she had been employed to sort. The court held that the 
money became the property of the finder and not of the owner of the 

rags. 

Bowen v. Sullivan, 62 Ind., 281. 



PROPERTY. 



13 



A lessee, in excavating, discovered an ancient boat that had been 
buried in the earth for centuries. The boat was held to be the property 
of the owner of the land. 

Elwes v. Briggs Gas Co. L. R., 33 Ch. Div., 562. 

See also Ferguson v. Ray, 44 Oregon, 557. 

21. How One may be Deprived of Property. — One may 

be deprived of his property (a) by its destruction, (b) by its 
capture by a public enemy, (c) by judicial process, (d) by pre- 
scription, (e) by adverse possession. 

22. (a) Destruction of Property. — We all know that 
property may be destroyed by natural causes, or by accident, 
or by the owner's own act, but there are instances when it may 
be destroyed by the state. A state may, in the exercise of its 
supervisory authority, called "police power," enter upon the 
premises of a private person and destroy, without compensa- 
tion, such property as has an unlawful existence, or is noxious 
to the public health, public morals or public safety. Thus, a 
state may cause the killing of tuberculous cows without making 
payment to the owner therefor. 

Houston v. State, 98 Wis., 481. 

23. (b) Capture by Enemy. — When property is captured 
by a public enemy in time of war, the owner is without remedy. 

24. (c) Seizure Under Process. — Property may be seized 
under judicial process and sold to satisfy a judgment or decree 
of a court against the owner. Analogous to this, property may 
be sold to satisfy an unpaid tax. Upon just compensation being 
made to the owner, property may be taken for public purposes 
under the state's right of eminent domain. 

25. (d) Prescription. — When the owner of land permits 
another, who is without right, to enjoy privileges therein for 
a long period of time (usually 20 years or less) the privilege, if 
unchecked, will ripen into a right, and the owner will thereafter 
be without power to prevent its exercise. Thus, if B uses a 
private road across A's land during the statutory period (which 



14 PRACTICAL LAW. 

varies in the different states, but is usually 20 years or less) and 
if such use by B is without license from A and is permitted to 
continue during all of said period without interruption, A 
cannot thereafter prevent B using such road. The right to 
use it will have become vested in B by prescription. 

The same rule applies to the exercise of other similar rights, 
such as the cutting of ice, the flowage of drains, the enjoyment 
of the light and air entering from another's land. 

26. (e) Adverse Possession. — When one takes possession 
of another's land, claiming title, as for example, where one 
moves a line fence over upon the lands of his neighbor, claim- 
ing that he has placed the fence upon the true line, and if such 
possession is openly and uninterruptedly continued during the 
whole statutory period (usually 20 years or less) the adverse 
possession will ripen into title, and the aggressor cannot be 
thereafter dispossessed by the true owner. 

The purpose of the rule allowing title to arise by prescrip- 
tion and adverse possession is to compel people to act promptly 
in defense of their rights. The law despises stale claims. 



CONTRACTS, 

Their Formation, Interpretation and 
Termination. 



15 



CHAPTER III. 



CONTRACTS. 



Their Formation. 

27. Importance of Subject. — A Contract is an enforcible 

agreement. All contracts may be reduced to writing. Some 
contracts must be in writing. But in those cases in which con- 
tracts are not required by law to be written, they are equally 
binding if made orally. One general objection to oral con- 
tracts is their uncertainty. It is often difficult and, sometimes, 
impossible to prove what was said by the parties when the con- 
tract was made. 

Practically all business is transacted by means of contracts. 
The law of contracts governs all commercial dealings, from the 
simplest to the most complex. Every time a newsboy sells 
and delivers a paper, a contract is made and executed. The 
workman markets his labor and skill, the merchant buys and 
sells his wares, the banker receives and lends » money, the 
financier effects his great industrial combinations, by contract. 

Some subjects of the law are chiefly the concern of lawyers, 
but this subject concerns everyone. It is important that all 
persons become able to distinguish between contracts which are 
legally good and those which are legally bad. Inability to do 
this means inability to act promptly in matters of business; it 
means want of independence ; it means lost opportunities ; it 
means uncertainty, danger and delay. Fortunately, the sub- 
ject is not difficult. Any attentive student can readily grasp 
its governing principles. 

16 



CONTRACTS. 1 7 

28. The Meaning of "Enforcible." — We have said that 
a contract is an enforcible agreement. By "enforcible" we 
mean legally binding. Many agreements give rise to moral 
obligations, although, legally, they are nullities. Thus, a 
promise to attend a dinner or a ball as a guest, although morally 
binding, is legally void. Courts confine themselves to the 
adjustment of substantial rights; they cannot spend their time 
in correcting mere breaches of social courtesy. 

Again, if A were to make an unwritten agreement to sell 
B a certain piece of land, a moral obligation would thereby 
arise, yet the promise would be unenforcible, because a con- 
tract for the sale of land, to be binding, must be in writing. 

A contract is enforcible when it is of such a character that 
a court will require, either its performance, or payment of 
damages for its non-performance. 

29. Classes of Contracts. — For convenience, contracts are 
divided into three classes, namely, valid contracts, voidable 
contracts, and void contracts. 

(a) A Valid Contract is one which is unqualifiedly en- 
forcible. 

(b) A Voidable Contract is one which is so defective that 
one or both the parties to it may lawfully disregard it. Thus, 
a contract, for things not necessaries, made with one who is 
under the age of twenty-one years, is voidable, for he may 
perform it or repudiate it at will. 

(c) A Void Contract is one that is wholly unenforcible. 
It is really no contract at all. Thus, an agreement to do an 
act prohibited by law would be void. The law will not enforce 
its own violation. 

30. Forms of Contracts. — As to form, contracts are either 
written or unwritten. 

(a) Written Contracts may be expressed in documents, 
letters or telegrams. 

(b) Unwritten Contracts may be expressed in spoken 
words or in acts. An unwritten contract expressed in spoken 



l8 PRACTICAL LAW. 

words is called a verbal, oral or parol contract. These terms 
are identical in meaning. 

A contract expressed in words, whether spoken or written, 
is called an Express Contract. A contract arising from acts 
is called an Implied Contract. 

31. A Simple Contract. — The following example of a 
simple contract is inserted for the purpose of pointing out the 
elements which render it, in form, an enforcible agreement. 
The parenthetical letters indicate distinct parts of the con- 
tract, afterwards explained. 

This Agreement, (a) Made (b) this first day of January, A. D. 
1906, by and between (c) John Doe, of the city of Chicago, Cook 
County, State of Illinois, as party of the first part, and Richard Roe, 
of the same place, as party of. the second part, for and in (d) consider- 
ation of the mutual promises and agreements herein set forth, 
WITNESSETH, (e) 

First. That the said party of the first part hereby hires and 
employs the said party of the second part to act in the capacity of chief 
accountant in the wholesale carpet house of said party of the first part, 
for and during a period' of one year from and after this date, at a 
salary of two hundred dollars per month, payable monthly. 

Second. That said party of the second part hereby accepts and 
agrees upon said employment for the period of time and at the salary 
above stipulated, and further agrees to devote to the duties of said 
employment exclusively, all and his best skill, ability and endeavor. 

IN TESTIMONY WHEREOF, The parties hereto have hereunto 
set their hands the day and year first above written. 

John Doe. 
Witness : Richard Roe. 

Grant White. 

Examination of this brief contract discloses that it sets 
forth (a) an agreement, (b) properly made and expressed 
(c) between two parties, (d) upon a sufficient consideration, 
(e) to do a certain, lawful thing. Now, if we ascertain that 
the parties were capable of contracting, we shall be sure that 
the contract, if honestly made, is valid. We say "if honestly 
made" because fraud renders a contract voidable at the option 
of the party defrauded. 



CONTRACTS. TO, 

32. Testing a Contract. — All contracts maybe judged by 
the same standards that we have applied to this one. Every 
valid contract is (a) an agreement, (b) properly made and 
expressed (c) between competent parties, (d) upon a sufficient 
consideration, (e) to do or not to do a certain, lawful thing. 

In passing upon the validity of a contract, we must ask and 
answer the following questions: 

(a) Was there an agreement? 

(b) Was the agreement properly made and expressed? 

(c) Was the agreement between competent parties? 

(d) Was the agreement founded upon a sufficient consid- 
eration ? 

(e) Was the agreement to do or not to do a certain thing? 

(f) Was the object of the agreement lawful? 

If the correct answer to each of these questions is "yes," 
we may be sure that the contract under examination is valid. 
If the answer to some of the questions is "yes" and to others 
"no," we may be sure that the contract is either voidable or 
void, according to the seriousness of the defect. Let us now 
proceed to learn how to correctly answer these questions. 



CHAPTER IV. 



AGREEMENT. 

33- When Agreement Occurs. — Agreement occurs when 
the minds of the contracting parties meet upon an identical 
purpose. Without an agreement there can be no valid con- 
tract. 

34. Difference Between Agreement and Contract. — 

"Agreement" is a broader term than "contract." All valid 
contracts are agreements, but not all agreements are valid 
contracts. Thus, an agreement to do something which is 
unlawful or against public policy would not amount to a 
valid contract, because courts will not enforce violations of 
the law nor acts which will work public injury. 

35. How Agreement is Attained. — Contractual agree- 
ment always results from an offer on the one side, and accept- 
ance of the offer on the other. Both offer and acceptance may 
be by words or by acts. 

If I say to A, "I will give you $200 for your horse," and if 
A replies, "I will accept it," an agreement results, for our 
minds have met upon an identical purpose. But if, instead of 
accepting my offer, he replies, "I will take $250 for the horse," 
there is no agreement, for, in that case, our purposes are 
different, his being to sell for $250 and mine being to purchase 
for $200. In fact, A's reply that he "will take $250 for the 
horse" is itself an offer. If I accept it, an agreement will 
result, for our minds will have met at last upon an identical 
purpose, namely, that ownership of the horse shall pass to 
me upon payment of $250. 

It should be remembered that agreement is but one of the 
several elements of a contract. While, without an agreement, 
20 



AGREEMENT. 21 

there can be no contract, there may be an agreement and still 
no contract, if other essentials are wanting. 

36. Offer. — There are two kinds of offers, 

(a) An offer to receive an offer, and 

(b) An offer to receive an acceptance. 

Acceptance of an offer to receive an offer does not give 
rise to an agreement. Thus, if A were to write to B, saying: 
"I have some prime butter which I am selling at 20 cents per 
pound. Would you like some," B could not bind A to deliver 
him butter by sending A an order therefor. B's order would 
amount to a mere offer, and would not become effective for 
any purpose until accepted by A. On the same principle, 
newspaper advertisements, describing goods and quoting 
prices are mere offers to receive offers, unless they invite 
definite acceptance. For example, an advertisement in the 
following terms is a mere offer to receive offers: "We have 
a choice assortment of silks at $1 per yard." But if this adver- 
tisement were changed to read : "Send us $5 and we will send 
you 5 yards of our best, black China silk," it would amount 
to an offer for an acceptance. One who complied with the 
terms of such an offer would be entitled to receive, either the 
silk ordered, or damages for the breach of the contract. 

So if A, in the first example above given, had written to B 
saying, "I will ship you 1,000 pounds of prime butter at 20 
cents per pound, delivered," B's acceptance would have bound 
A. The offer would have been an offer for an acceptance. 
When such an offer is accepted, an agreement results. 

37. Acceptance. — Acceptance, to be effectual, must be 
coextensive with the offer. A qualified or conditional accept- 
ance is merely a new offer and must be itself accepted before 
an agreement will result. 

Illustration. — Stephenson offered Johnson & Wheeler 200 boxes 
of cheese, to be delivered at a certain time, place and price. Johnson 
& Wheeler accepted the offer as to quantity, price and place of delivery, 
but not as to time of delivery. The court held that there was no 



22 PRACTICAL LAW. 

agreement. The acceptance was not coextensive with the offer, hence 
the minds of the parties had not met upon an identical purpose. 
Johnson v. Stephenson, 26 Mich., 62. 

If an offer fixes a time within which it is to be accepted, 
acceptance cannot be made after the time limited has expired. 
If an offer fixes no time within which it is to be accepted, it 
will be held to continue a reasonable time, and acceptance 
within a reasonable time will be binding. 

If an offer is to be accepted in a certain manner, as, for 
example, by telegram, acceptance in some other manner, as, 
for example, by mail, will be ineffectual. 

A provision in an offer that silence shall be construed to 
mean acceptance is not binding upon the offeree. The offerer 
can impose no such obligation. The offeree may ignore the 
offer if he chooses. An unaccepted offer gives rise to no 
duty on the part of the one to whom it is made. 

38. Revocation. — An offer may be withdrawn (or revoked) 
at any time before acceptance. After acceptance it is irre- 
vocable. 

When an offerer fixes a time within which his offer may be 
accepted, he may, until acceptance, revoke at will before the 
time has expired, unless he has received a consideration for 
holding the offer. 

39. Cancellation of Orders.— It is not an unusual occur- 
rence for a traveling sales agent, by the exercise of his trained 
powers of persuasion, to induce persons to give orders for 
articles which, upon sober afterthought, are found undesirable 
or unnecessary. If such orders are taken subject to the 
approval of the agent's principal, or "house," as is generally 
the case, the deluded purchaser has a means of escape from 
his bad bargain, provided he acts with sufficient promptness. 
His remedy is to countermand the order immediately by 
telephone or by telegraph, or by any other means that will 
bring his revocation of the order to the attention of the 



AGREEMENT. 2$ 

agent's principal before the latter has had time to make 
acceptance. The authority of a traveling sales agent is usually 
merely to make an offer to receive an offer (see sec. 36) and 
not to make an offer to receive an acceptance. This is always 
the case when the house reserves the right to accept or reject 
all orders that the agent procures. Such orders are merely 
offers, and, on the principle stated (see sec. 38) may be 
revoked at any time before acceptance. This is true even 
when the order expressly provides that "it shall not be subject 
to countermand." 

Illustration. — Fort, an agent, secured from Freese & Rohde an 
order for a cash register. The order was in writing, signed by Freese 
& Rohde, and contained the following clause: "This order is given 
subject to your (the seller's) approval, and it is expressly agreed that 
it shall not be subject to countermand." Before acceptance of the 
order or shipment of the register, Fort's principal (i. e., the house for 
which Fort acted as salesman) received the following letter: 

"Dear Sir : You received an order from us for one Peck Register 
from your man, O. W. Fort. Please hold the same until further notice." 

(Signed) "Freese & Rohde/' 

The court held that the countermand was sufficient, and that Freese 
& Rohde were under no legal obligation to accept or pay for the 
register. 

Peck v. Freese, 101 Mich., 321. 

40. Offer, Acceptance and Revocation by Mail and Tele- 
graph. — When an offer is made by mail, the offer continues 
open until the letter is received, and for a reasonable time 
thereafter, unless sooner revoked. Thus, an offer made by 
mail might be revoked by a telegram, or even by a subsequent 
letter, provided the revocation reached the offeree before 
acceptance of the offer. If the revocation failed to reach the 
offeree until after he had accepted the offer, it would be too 
late. Revocation by mail becomes operative when the letter 
of revocation is received by the offeree, and not before. Accept- 
ance by mail becomes binding when the letter of acceptance is 
mailed. If A, in Chicago, were to make B, in Detroit, an 
offer on January 1st, and if B were to mail his acceptance of 
the offer on the morning of January 4th, a letter of revoca- 



24 PRACTICAL LAW. 

tion mailed by A on January 3d and received by B on the 
afternoon of January 4th would be wholly ineffectual. Were 
A to communicate his revocation to B on January 3d by 
telephone or telegram, it is evident that he might forestall the 
acceptance. Revocation should alzvays be made by the quickest 
means. 

A letter of acceptance, properly mailed, is binding upon the 
offerer, although he may never receive it. The minds of the 
parties are held to have met at the moment the letter of 
acceptance is mailed, and an agreement has therefore been 
made, although the letter may be afterwards lost. But a letter 
of revocation is wholly inoperative until it has reached the 
offeree. 

Similar rules are applied to telegrams of acceptance and 
revocation. 



CHAPTER V, 



MAKING AND EXPRESSING THE AGREEMENT. 

41. Two Dangers. — An agreement may be reached, the 
minds of the parties may have met upon an identical purpose, 
and yet a valid contract may fail to arise (a) because the 
agreement was made at an improper time, or (b) because it 
was improperly expressed. 

42. Improper Time. — By statute in most of the states, 
contracts made on Sunday are void. Thus, if A sells his horse 
to B on Sunday on credit the courts will not assist A to 
collect the purchase price. In many states the courts will not 
aid either party under an unlawful Sunday contract, but will 
leave them where they have placed themselves by their illegal 
transaction. 

43. Contracts Improperly Expressed. — If a contract is 
oral when the law requires it be in writing, it will be either 
voidable or void. All contracts may lawfully be made orally, 
unless some statute provides otherwise. The difficulty is that 
all states have statutes requiring certain ...important contracts 
to be in writing. The purpose of these statutes is to require 
the preservation of accurate proof of what was actually agreed 
upon. Human memory is fallible. It is often biased by selfish 
interests. Several centuries ago it was observed that verbal 
contracts were a source of many frauds and perjuries. So, 
during the reign of Charles II., a statute was passed in Eng- 
land, entitled "An Act for the Prevention of Frauds and 
Perjuries." This statute made several classes of contracts 
void unless preserved in writing. Nearly every state in the 
Union has adopted a Statute of Frauds modeled, to some 
extent, upon this ancient act. 

25 



26 PRACTICAL LAW. 

Under the Statute of Frauds in most states the following 
classes of contracts are required to be in writing: 

(a) Contracts which cannot be performed within one year. 

(b) Contracts to pay the debt of another. 

(c) Contracts made in consideration of marriage, except 
mutual promises to marry. 

(d) Contracts for the sale of any interest in land. 

(e) Contracts for the sale of personal property at a price 
exceeding $50. 

Such contracts, unless in writing, are usually unenforcible. 

44. Contracts which Cannot be Performed Within One 
Year. — When a contract cannot by any possibility be per- 
formed within one year, it must be in writing. Thus, a contract 
to purchase the output of a factory for three years would be 
void if merely verbal. But if, by any possibility, a contract 
may be performed within one year, it need not be in writing, 
although performance within that time is not expected and 
does not take place. Thus, a contract to support another dur- 
ing life need not be in writing, for death may occur within the 
year. 

Illustrations. — (I) Palmer entered into a contract August 8, 
1872, for employment for one year to begin August 14, 1872. This made 
the contract require one year and six days for its performance. The 
agreement, being verbal, was held void. 

Palmer v. Marquette & Pacific Rolling Mill Co., 32 Mich., 274. 

(II) In settlement of a claim, Wood received from a railroad 
company an agreement, made orally, to issue him a pass annually for 
ten years. The pass was to be valid for the use of himself and his 
family, but for no one else. It was clearly the intent of the parties 
that, if Wood and his family were to die within the ten years, no 
more passes should issue. Death of all being possible within one year, 
the oral contract was held binding. 

Railroad Co. v. Wood, 88 Texas, 191. 

45. Contracts to Pay the Debt of Another. — A verbal 
promise to pay the debt of another is void. Thus, a promise 
made by a widow to pay the debt of her deceased husband 
would be unenforcible, unless in writing. 



MAKING AND EXPRESSING THE AGREEMENT. 2>] 

If A says to B, "Let C have goods and, if he does not pay 
for them, I will," A's promise is to pay the debt of another. 
If unwritten, it will be void. 

But if A says to B, "Let C have goods and charge them to 
my account," A will be bound whether the contract is oral or 
written, for the debt is his own. 

Illustration. — Chappell, a physician, was employed by Barkley, 
and, up to March 11, 1887, rendered services amounting to $27. On that 
date, Barkley's son said to Chappell, "Charge this bill to me, together 
with what you do afterwards." Services to the amount of $11 were 
rendered thereafter. The son failed to make payment, and Chappell 
sued him for the whole $38 earned. 

The court held that the services rendered up to March 11, 1887, 
were not chargeable to the son under his unwritten promise to pay for 
them, for this was really a promise to pay the debt of his father, and 
was void under the Statute of Frauds. But judgment was rendered 
against the son for the $11 earned thereafter, for that sum represented 
services performed at the son's request and was, therefore, the son's 
own debt. 

Chappell v. Barkley, 90 Mich., 35. 

46. Contracts Made in Consideration of Marriage. — 

Mutual promises to marry need not be in writing. Were A to 
say to B, "Will you marry me," and were B to reply, "I will," 
a valid promise would be properly expressed. For breach of 
this promise, the injured party would be entitled to recover 
damages. 

But if A were to say to B, "If you will marry me I will 
give you $1,000," B could not compel A to pay over the 
money, either before or after marriage, unless the contract 
were reduced to writing. 

Illustration. — Hunt verbally promised a woman to pay her 
$5,000, a weekly income, and a portion in his will if she would become 
his wife. She agreed to this and they were married. Hunt failed to 
perform the agreement, and the court held that, because the agreement 
was oral, it could not be enforced. 

Hunt v. Hunt, 171 N. Y., 396. 

47. Contracts for the Sale of any Interest in Land. — 

One cannot make a valid verbal agreement to sell land or any 



28 PRACTICAL LAW. 

interest in land. Even though a part of the purchase price is 
paid, such a verbal agreement will be void. The purchase price 
may be recovered back, but nothing more can be done. 

Illustration. — Thompson made a verbal contract with the New 
South Coal Company for the purchase of a piece of land, and paid 
$250 on the purchase price. The company afterwards refused to 
perform the contract. It was held by the court that Thompson could 
recover his $250, but that he could not, upon payment of the remainder 
of the purchase price, compel the company to deed him the land. 
Thompson v. New South Coal Co., 135 Alabama, 630. 

48. Standing Timber. — Standing timber is an interest in 
land, hence a contract for the purchase of standing timber will 
be void, unless made in writing. 

49. Contracts for the Sale of Personal Property. — Con- 
tracts for the sale of personal property exceeding in value a 
certain sum, must, in nearly all of the states, be in writing or 
remain unenforcible. In a majority of the states, verbal con- 
tracts for the sale of personal property up to $50 in value 
are valid. But this sum varies. In Delaware it is $25, while 
in Louisiana it is $500. (See title Statute of Frauds, Table A, 
Appendix.) 

50. Contracts for Services. — While, for some purposes, 
services are property, verbal contracts for services exceeding 
$50 (or the statutory limit, whatever it may be) may be law- 
fully made. The statute applies to sales of goods, wares and 
merchandise only. It does not apply to contracts for services. 

Illustration. — Turner was employed by Mason, under a verbal 
contract, to paint two portraits at a price (as Mason testified) of $150. 
Turner's services as an artist were the thing contracted for. It was 
held that the agreement was not void under a statute requiring contracts 
for the sale of goods, wares and merchandise exceeding $50 in price 
to be in writing. 

Turner v. Mason, 65 Mich., 662. 

51. Payment and Delivery. — Contracts for the sale of 
personal property exceeding in value the statutory limit need 



MAKING AND EXPRESSING THE AGREEMENT. 20, 

not be in writing, if a part of the purchase price is paid. 
Payment "binds the bargain." Thus if A bought goods to the 
amount of $1,000 from B and paid even $i upon the purchase 
price, the contract would be enforcible as to both parties, even 
though it were verbal only. 

In like manner delivery and acceptance of a part of the 
property bought will bind the bargain. 

Illustration. — Gilbert sold Lichtenberg a quantity of onions 
amounting in value to a sum far exceeding $50. The contract was 
verbal. Two carloads of the onions were delivered to Lichtenberg 
and were by him accepted. He rejected the third car, claiming that the 
contract was void under the Statute of Frauds, because verbal. The 
court held that delivery and acceptance of goods under the contract 
made the contract as valid and binding as though it were in writing. 
Gilbert v. Lichtenberg, 98 Mich., 417. 

52. Putting the Contract into Writing. — When a con- 
tract must be written to be valid, the Statute of Frauds in most 
states merely requires that "some memorandum of the contract 
shall be made in writing signed by the party to be charged." 
No special form is necessary. The law is for the protection of 
all who transact business. Many of these are unskilled in 
drafting legal documents. Therefore the statute asks nothing 
more formal than a simple record which any intelligent person 
should be able to prepare. The memorandum may consist of 
signed orders, or of letters, or of telegrams, or of all or any 
of these. One thing however is demanded: the writing or 
writings embodying the contract must set forth the essential 
terms of the agreement so that the intent of the parties may 
be fully gathered therefrom. The memorandum cannot be 
supplemented by verbal explanations. 

53. Contents of Memorandum. — While not always nec- 
essary, it is always safest to so prepare the memorandum that 
it will show all of the following facts : 

(a) Date of making. 

(b) Date of performance. 

(c) Names of both parties. 



30 PRACTICAL LAW. 

(d) Accurate description of property sold or thing to be 
done. 

(e) Consideration. 

(f) Signatures of both parties affixed by themselves or by 
their authorized agents. 

In writing letters or telegrams intended to operate as 
written contracts, care should always be taken to include as 
many of these points as, under the circumstances, can be 
covered. 

Illustration. — (I) Lewis offered E. C. Hawes and sister $1,450 
for their interest in a certain piece of land in Cambridge, Mass. The 
offerees sent Lewis the following letter: 

"E. Weymouth, Mar. 24, 1890. 
Dear Sir : My sister and I have decided to accept the offer of 
$1,450 for our interest in the Cambridge property now under discussion. 

Resp. 

E. C. Hawes." 

These owners afterwards declined to convey the property to Lewis 
and he brought suit to compel them to do so. 

As this was clearly a contract for sale of an interest in lands, it was 
necessary for Lewis to produce a sufficient memorandum in writing. 
He produced the foregoing letter. The court held that the letter was 
insufficient for the purpose; that it did not contain the essential terms 
of the agreement ; that the omission to describe the property and to 
name the purchaser in the letter were fatal defects. For these reasons 
the court declined to enforce the contract. 
Lewis v. Wood, 153 Mass., 321. 

(II) Heffron bought from Armsby, through Rudell, the latter's 
agent, certain corn, and received from Rudell the following memoran- 
dum in writing: 

"Detroit, May 9, 1881. 
John Heffron bought of J. H. Rudell, agent for A. K. Armsby, three 
hundred cases of B. M. corn, $1.25 cash, less one half per cent. 

(Signed) J. H. Rudell. 

Armsby failed to deliver the corn and Heffron was obliged to 
purchase at an increased price. Heffron brought suit to recover as 
damages the difference between the contract price and the increased 
price which he had been obliged to pay. Armsby contended that the 



MAKING AND EXPRESSING THE AGREEMENT. 3 1 

foregoing memorandum was insufficient, and that the transaction was 
therefore void under the Statute of Frauds. But the court held that the 
memorandum was sufficient. Heffron was permitted to recover the 
damages claimed. 

Heffron v. Armsby, 61 Mich., 505. 

54. Signing the Memorandum. — The Statute of Frauds 
requires the memorandum in writing to be signed by the party 
to be charged. It need not be signed by both parties. The 
agreement will be enforcible against the party who signs and 
unforcible against the party who does not sign. From this it 
is evident that each party should require a complete and valid 
memorandum in some form, signed by the opposite party. 
When an important verbal order is taken, its written confirma- 
tion should be required. When an important verbal order is 
given, its written acceptance should be obtained. 

55. Signing by Agent. — The required memorandum may 
be signed by the parties in person, or by agent. In the case of 
Heffron v. Armsby (see sec. 53) we saw a signature by an 
agent sustained by the court. The signing in that case was 
in crude form. It should have read 

J. K. Armsby, 
by J. H. Rudell, Agent. 
Yet, because the intent of the parties was clear, the signing 
was treated as sufficient. 

In most states, written authority is required to enable an 
agent to execute a contract relating to land. Verbal authority 
is generally sufficient in all other cases. 



CHAPTER VI. 



COMPETENCY OF PARTIES. 

56. Incompetent Parties. — Contracts made by the follow- 
ing classes of persons are generally either void or voidable : 

(a) Infants, 

(b) Lunatics and drunken persons, 

(c) Persons under duress, 

(d) Married women. 

57. (a) Infants. — An Infant is a person under the age of 
twenty-one years. Contracts made by infants (except for 
necessaries) are voidable at the option of the infant. The 
law presumes that one who has not reached the age of majority 
is too inexperienced to be able to deal safely. The law there- 
fore says, in effect, "Those who deal with an infant must do so 
at their own peril." If the infant is satisfied with his bargain 
and desires to enforce the contract, he may; but if he is dis- 
satisfied, he may repudiate the contract, and the courts must 
sustain him in so doing." An infant cannot be held upon a 
contract, even though the agreement is perfectly fair and 
clearly beneficial to his interests, unless the contract is for 
necessaries. 

Illustration. — Widrig, an infant, entered into a contract with 
Taggart whereby Widrig was to work on Taggart's farm for a period 
of seven months. Just before harvest and in violation of his contract 
Widrig left Taggart's service. The court enforced Widrig's claim for 
services, but refused to permit Taggart to recover the damages he 
had sustained through Widrig's breach of contract. 
Widrig v. Taggart, 51 Mich., 103. 



COMPETENCE OF PARTIES. 33 

58. Necessaries. — An infant may bind himself upon a 
contract for necessaries to the same extent as though he were 
an adult. Were this not so, a friendless infant might suffer 
or even perish for want of ability to contract for food, cloth- 
ing and shelter. 

To be necessaries, the articles furnished or money advanced 
must be actually necessary in the particular case. Board, 
lodging, food, medicine and education are necessaries. But 
those things which are merely for ornament or for pleasure 
are not necessaries. 

The fact that the thing furnished was useful and was in 
the nature of a necessary will not sustain the contract, unless 
the thing furnished was, in point of fact, necessary to the 
infant at the time it was supplied. Thus, one who supplies 
food, clothing or lodging to an infant who is not in need of 
them, or to an infant who is provided with these things by his 
parent or guardian, cannot hold the infant responsible for 
payment. 

Illustration. — An infant attending Yale rented a room for the 
college term of forty weeks. After a brief occupancy, he paid up all of 
the rent then due and took lodgings elsewhere. The landlord after- 
wards attempted to collect rent for the whole term, maintaining that the 
room was a necessary and that the infant was therefore bound to pay 
for the full time covered by his contract. The court held that the 
room was necessary to the infant so long as he needed it, and no longer, 
and that, when the infant was provided with lodgings elsewhere the 
room first rented ceased to be necessary to him. The moment the 
room ceased to be necessary, the infant's contract ceased to be binding 
upon him. The landlord was not permitted to recover further rent. 
Gregory v. Lee, 64 Conn., 407. 

59. Disaffirmance.— 'The courts are all agreed that an 
infant cannot be held upon his contract while he remains an 
infant, unless the contract is for necessaries. But when a 
person attains the age of twenty-one years is he bound by the 
contracts that he has made during infancy? To this question 
the courts of some of the states reply, "Yes, he is bound by 
his contracts made during infancy, unless, upon attaining his 



34 PRACTICAL LAW. 

majority, he DISAFFIRMS them within a reasonable time." 
The courts of other states say: "No, he is not bound by his 
contracts made during infancy, unless, upon attaining his 
majority, he RATIFIES them." This conflict of opinion 
makes it necessary to refer the student to the law as it exists 
in his own state. 

60. Return of Property. — When one seeks to disaffirm a 
contract on the ground that he was an infant when he made it, 
he must return so much of the consideration received by him 
as remained in his hands upon attainment of his majority. He 
cannot both keep the property and disaffirm the contract. Re- 
tention of the property is a ratification of the contract. By 
retaining the property gained under a contract during infancy, 
the adult elects to be bound. 

If an infant purchases property and disposes of it during 
infancy he is not obliged to return either the property or its 
value in order to be able to disaffirm the contract. But reten- 
tion of any part of the property after attaining majority will 
amount to a ratification of the whole contract. 

Illustrations. — (I) An infant sold land for $240 and invested 
the proceeds in a piano. On coming of age, he demanded back the 
land. The purchaser contended that, if he returned the land he should 
receive the piano. The court decided that the infant could both recover 
the land and retain the piano, as the $240 in money, and not the piano, 
was what he had received for the property. The money having been 
spent, return of it could not be required. 

Englebert v. Prichett, 40 Nebraska, 195. 

(II) An infant purchased land and gave a mortgage upon it back 
to the grantor to secure payment of the purchase price. On coming of 
age, the grantee, who still held the land, attempted to disaffirm the 
mortgage on the plea that it was given during infancy. The court held 
that the grantee could not retain the direct benefits and shirk the 
burdens of his contract; he could not avoid the mortgage without first 
tendering back the land. 

Young v. McKee, 13 Mich., 552. 

61. Fraud of Infant. — If an infant represents that he is of 
full age, and obtains contractual benefits thereby i he tnay be; 



COMPETENCE OF PARTIES. 35 

held liable for his fraud if he afterwards avoids the contract on 
the ground of infancy. 

Illustration. — An infant, by representing himself to be past 
twenty-one years of age, purchased goods (not necessaries) and gave 
his note for the purchase price. He afterwards avoided the note by 
pleading infancy. The seller of the goods then sued the infant fox 
the fraud and was permitted to recover damages. 
Burley v. Russell, 10 N. H., 184. 

62. (b) Lunatics and Drunken Persons. — Drunkenness 
is regarded as a temporary lunacy. Intoxicated persons and 
lunatics are under like contractual disability. 

The general rule is that the contract of a lunatic or of a 
drunken person is voidable at his option, provided that, at the 
time of the transaction, he was incapable of understanding the 
meaning and effect of his act, and provided that his condition 
was known to the person who dealt with him. If the lunatic 
or drunken person had sufficient use of his faculties to under- 
stand the nature and effect of his act at the time of the trans- 
action, the contract will be valid. So too if the contract was 
made by one who did not know the condition of the lunatic or 
drunken person, and who acted fairly and took no undue 
advantage, the transaction will be upheld. 

Illustration. — Falch bought two barrels of liquor in 1894 from a 
vendor who made a fair bargain and who did not know that Falch was 
insane. Afterwards Falch was adjudged insane, and an attempt was 
made to escape payment for the liquor on the ground that the contract 
was avoided by the fact that Falch was a lunatic when the purchase 
was made. The court held that this could not be done. The contract 
was sustained. 

Falch v. Gottchalk, 88 Md., 368. 

63. Bad Faith. — When a contract is made with a weak 
minded person, a lunatic or a drunken person, under circum- 
stances showing bad faith on the part of the other party, the 
transaction will be generally set aside. Thus, unconscionable 
contracts made with persons whose ^mental powers have been 
impaired by sickness or old age are often set aside by the 
courts. 



$6 PRACTICAL LAW. 

If A were to induce B to become intoxicated, and were 
then to make a contract with B to B's great disadvantage, the 
contract would be voidable at B's option. 

64. Necessaries. — Contracts for necessaries supplied in 
good faith to lunatics and drunken persons are enforcible. 

65. Lunatics Under Guardianship. — The contracts of a 
lunatic (except for necessaries) made while under guardian- 
ship are void. 

66. (c) Duress.— Duress is compulsion by .acts or threats 
giving rise to fear of serious injury. Contracts made under 
duress are voidable at the option of the injured party. When 
a person is deprived of the free exercise of his will by great 
fear of imprisonment, bodily injury, destruction of property, 
or harm to his family, there can be no true meeting of the 
minds of the parties. Without this, there can be no agreement. 
Without agreement, there can be no valid contract. 

Illustration. — Sherman, claiming to have been injured by eating 
defective meat sold to him by Galusha, sued the latter for $5,000 
damages and then, threatening him with prosecution and imprisonment 
if he refused, induced Galusha, when thus under fear, to settle the 
case by execution to Sherman a note of $1,000 secured by a mortgage 
covering Galusha's farm. At Galusha's request, the court declared 
the note and mortgage void. 

Galusha v. Sherman, 105 Wis., 263. 

67. (d) Contracts of Married Women. — The power of a 
married woman to make contracts is statutory. At common 
law she was unable to contract. 

An unmarried woman possesses the same contractual 
powers as a man. When the husband of a married 'woman 
dies, her power to make contracts is thereby immediately 
revived. The same is true if the marriage is terminated in 
any other manner. 

By statute in nearly all of the states, a married woman may 
conduct any business in her own name and may make bind- 



COMPETENCE OF PARTIES. 37 

ing contracts in relation thereto. But many of the states deny 
her the right to become a surety for another, or to bind herself 
by any contract not relating to her separate and individual 
property. (As to contractual powers of married women in 
the several states, see Appendix, Table B.) 

68. Necessaries. — By reason of his legal obligation to 
support her, a married woman may bind her husband's credit 
for necessaries. But, as in the case of an infant, the articles 
purchased must be necessaries. If she is already sufficiently 
provided, she cannot bind her husband's credit for more. 

Illustration. — A married woman whose husband provided her 
with all needful things by her requested, went to a store and bought 
goods to the amout of about $200, having them charged to her husband. 
He had no account with the store where the goods were purchased, nor 
had he given his wife authority to purchase goods there in his name. 
The goods bought were mainly useful, and, had his wife been unpro- 
vided, woukl have been in the nature of necessaries. But, because she 
was already fully provided, the court held that the goods were not 
necessaries, and that their value could not be collected from the 
husband. 

Clark v. Cox, 31 Mich., 304. 



CHAPTER VII 



CONSIDERATION. 

69. The Meaning of Consideration. — The thing given by 
each party to the other as the inducement for the contract is 
called Consideration. Thus, A bought a horse from B for 
$300. The consideration moving to A was the horse. The 
consideration moving to B was the $300. 

70. Absence of Consideration. — Contracts to give some- 
thing for nothing are void. Consideration is the foundation of 
the contract; without it the contract must fall. Thus, if A 
were to give B, gratuitously, an option for the purchase of land 
belonging to A, B could not enforce the option contract. But 
if B had paid A something of value for the option, even a 
small sum, as, for example $1, the option contract would be 
enforcible. 

71. Good Consideration. — The following things are held 
to be good considerations : 

(a) Money and things of value. 

(b) Mutual promises. 

(c) Acts and forbearances. 

(d) Natural love and affection. 

72. (a) Money and Things of Value. — The exchange of 
value for value is the commonest form of consideration. The 
values need not be commensurate. In the absence of bad faith 
or fraud, the courts will not inquire into the adequacy of the 
consideration, but will leave the parties where they have placed 
themselves by their own bargain- 

38 



CONSIDERATION. 39 

73. (b) Mutual Promises. — Mutual promises creating 
reciprocal obligations form a good consideration. 

Illustration. — Certain merchants residing in Russellville, Ky., 
joined in signing the following agreement: 

"We, the undersigned merchants of Russellville, do hereby agree 
and obligate ourselves to close our place of business at 6:30 o'clock 
(P. M.) beginning May 15, 1895, and lasting until the first of Sep- 
tember." 

Certain merchants, claiming this agreement to be without considera- 
tion, violated it. Suit was brought for its enforcement. The court held 
that the mutual promises resulting from the signing of the agreement 
formed a good consideration and that the agreement was, therefore, 
valid. The contract was enforced. 

Stovall y. McCutchen & Co., 107 Ky., 577. 

74. (c) Acts and Forbearances. — An act or a forbearance 
is a good consideration. 

Illustrations. — (I) Sallie D. Stemmons entered into a contract 
with her grandson, Albert R. Talbott, in the following terms : 

"April 26th, 1880. 
I do promise and bind myself to give my grandson, Albert R. Tal- 
bott, five hundred dollars at my death if he will never take another chew 
of tobacco or smoke another cigar during my life from this date up to 

my death 

(Signed) Albert R. Talbott, 

Sallie D. Stemmons/' 

Talbott performed the contract. When Mrs. Stemmons died, her 
executor refused to pay Talbott the $500, claiming that the contract 
was without consideration. Talbott brought suit for the sum and the 
court held that Talbott's forbearance to do a thing which he had a 
legal right to do (namely to use tobacco in the forms specified) consti- 
tuted a good consideration. Talbott was awarded the $500. 
Talbott v. Stemmons Executor, 89 Ky., 222. 

(II) Ballard was a depositor in the First National Bank of St. 
Albans, Vermont. Burton was a stockholder and director in the bank. 
During a run on the bank, Ballard called for his money, but was 
induced to leave it by Burton, who offered to indorse the bank's certi- 
ficate of deposit for the amount if Ballard would not then withdraw the 
funds. The bank afterwards failed and Ballard brought suit against 
Burton upon fhe indorsement so given. Burton claimed that the 



40 PRACTICAL LAW. 

indorsement was without consideration, but the court held that Ballard's 
forbearance to withdraw his money was a good consideration, and that 
Burton's contract of indorsement was, therefore, enforcible. 
Ballard v. Burton, 64 Vt, 387. 

75. (d) Natural Love and Affection. — Blood relationship, 
natural love and affection and natural duty are all good consid- 
erations. Deeds conveying real estate from parent to child 
are frequently made "in consideration of love and affection," 
and such conveyances are valid. 

76. Valuable Consideration. — A consideration is said to 
be "valuable" when it consists of money or of something con- 
vertible into money. Marriage is also a valuable consideration. 
As between the parties to the transaction, a good consideration 
is sufficient, but to support the transaction as against the 
adverse interests of creditors, the consideration must be both 
good and valuable. 

Illustration. — Smith, being indebted to Fellows, conveyed his 
property to his wife without receiving any valuable consideration for the 
conveyance. Fellows brought suit to have the conveyance set aside. 
In deciding the case the court said : "Where a conveyance from a 
husband to a wife is a voluntary one, without valuable consideration, it 
is void in the law, as against creditors, because it transfers property 
which they (the creditors) could have reached had no such transfer 
been made." 

Fellows v. Smith, 40 Mich., 689. 



CHAPTER VIII 



CERTAINTY AND LEGALITY OF OBJECT. 

77. Certainty. — To be enforcible, a contract must be 
certain in its essential provisions. Courts cannot make agree- 
ments for the parties ; they cannot render certain that which the 
parties have left in doubt. 

Illustration. — Isaac N. Bumpus entered into a contract with his 
father and mother to remain at home, manage their estate, educate 
his younger brother and set the younger brother up in such business 
as the latter should select. For doing all of these things, Isaac was 
to receive certain advantages. The agreement did not in any manner 
fix or limit the amount to be expended by Isaac in behalf of his 
brother. The father and mother refused to perform their part of the 
contract and Isaac brought suit to compel them. In deciding the 
case the court said : "The contract itself, as set out, was in some 
particulars as vague as possible, and especially in all that relates to 
what was to be done for Myron (the younger brother) in furnishing 
him an education and assisting him to get a start in business. 
Whether parties making such a contract would contemplate a cost 
of one thousand dollars or of twenty thousand dollars, no one but 
themselves could say : for the one sum might in some cases be made 
to answer or the other be required. Courts cannot enforce such 
contracts/' 

Bumpus v. Bumpus, 53 Mich., 346. 

78. Illegal Contracts. — The following classes of contract 
are void : 

(a) Contracts in violation of law. 

(b) Contracts contrary to public policy. 

79. (a) Contracts in Violation of Law.— Courts exist to 
enforce the law and not to aid its violation. It follows that, 

41 



42 PRACTICAL LAW. - 

when the object of a contract is unlawful, enforcement of the 
contract is impossible. The contract is therefore void. 

Illustration. — In a noted case in which James R. Keene, the 
famous financier, was interested, and in which Joseph H. Choate, one 
of the leaders of the American bar, was among the eminent counsel, 
the following facts and decision were developed: Keene and others 
had undertaken to "corner the market" in lard, and had entered into a 
contract for that purpose. This agreement was in violation of the 
statutes of the state. The parties to the transaction finally fell into a 
dispute among themselves concerning the division of the profits and 
the matter was taken into court for adjustment. The court declined 
to interfere, but left the parties to settle their own quarrel. The 
contract was held to be unenforcible. 

Leonard v. Poole, 114 N. Y., 371. 

8o. (b) Contracts Contrary to Public Policy. — Law 

seeks to secure the greatest good to the greatest 
number. The interests of the few must yield to the rights of 
the many. The courts will not assist a private individual to 
work a public injury. A contract contravening public welfare 
is void. 

Illustrations. — (I) The Maine Central Railroad Company 
agreed with the Eastern Express Company to carry express for the 
latter exclusively for a period of four years. During that period 
another express company requested the Maine Central Railroad 
Company to transport express for it. The railroad company refused, 
relying upon its contract with the Eastern Express Company as a 
justification for the refusal. The court held that the contract was 
contrary to public policy and void. Common carriers must afford 
equal facilities and terms to all who offer goods for transportation. 

New England Express Company v. Maine Central Raiload 
Company, 57 Me., 188. 

(II) The New England Telephone 2l Telegraph Company placed 
a telephone in the office of the Western Union Telegraph Company in 
Rutland, Vermont, but declined to do likewise for the Commercial 
Union Telegraph Company in the same city. The refusal was based 
on the fact that the New England Telephone & Telegraph Company 
was forbidden by contract to place its instruments in the office of any 
telegraph company without the consent of a certain third party. This 



CERTAINTY AND LEGALITY OF OBJECT. 43 

contract was held void because contrary to the rights of the public. 
Telephone companies are public carriers of speech, and they cannot 
make valid contracts restricting the performance of their duty to the 
public. They must afford equal facilities and terms to all. 

Commercial Union Telegraph Company v. New England 
Telephone & Telegraph Company, 61 Vt, 241. 

(Ill) Ivey was killed in a collision on the Missouri Pacific Rail- 
road. At the time of his death, he was being transported under a 
drover's pass containing a contract with the railroad purporting to 
release the latter from liability for injuries resulting from the negli- 
gence of railroad company and its servants. This clause of the 
contract was held void, as against public policy. The court held that 
it was contrary to public welfare to permit a railroad company to 
relieve itself by contract from all liability for negligence. (This is 
not the law in all states.) 

Missouri Pacific R. Co. v. Ivey, 71 Tex., 409. 

81. Illegal Contracts! — In most states the following classes 
of contracts are void by statute. In states having no statute on 
the subject, such contracts are held void because contrary to 
public policy. 

(a) Contracts in restraint of trade, 

(b) Contracts for the purpose of stifling competition, 

(c) Contracts to influence public officials, 

(d) Gambling contracts, 

(e) Marriage brokerage contracts, 

(f) Usurious contracts, 

(g) Contracts for immoral purposes. 

82. (a) Contracts in Restraint of Trade. — A restriction 
of trade which is not sufficiently sweeping to injure public 
interest is valid. Thus, when one sells out the good will of 
a business, it is lawful for him to agree to refrain from re-enter- 
ing business in competition with the purchaser to the detriment 
of the good will sold. 

Illustration. — Tilden, who had been for many years engaged in 
making and dealing in shirts, collars and cuffs at Des Moines, Iowa, 
and who had an established trade in these articles throughout Iowa 
and Nebraska, sold the good will of his business to Swigert & Howard, 



44 PRACTICAL LAW. 

agreeing not to re-engage in the same business in Iowa or Nebraska 
or within one hundred miles of Des Moines for a period of ten years. 
The court held this contract valid. 

Swigert v. Tilden, 121 la., 650. 

When a contract restrains trade generally, or in an unrea- 
sonably large territory, or for an unwarrantable length of time, 
it will be held contrary to public policy, and therefore void. 

Illustration. — A Michigan firm sold out their stock and material 
to an Illinois corporation, and agreed not to re-engage, during a period 
of five years, in the same line of manufacturing in Michigan, Wis- 
consin, Illinois, Minnesota, Iowa, Missouri, Indiana or Ohio, nor to 
permit their plant in Michigan to be used for that purpose. This 
provision was adjudged in restraint of trade and void. 

Western Wooden- Ware Association v. Starkey, 84 Mich., 76. 

83. (b) Contracts Stifling Competition. — Agreements 
made for throttling competition, limiting production, and 
increasing prices are against the interest of the public, and 
are, for this reason, declared void by the courts. 

Illustrations. — (I) Dealers controlling 90% of the blue stone 
sold in New York, formed a combination known as the Union Blue 
Stone Company. The purpose of this Company was to limit produc- 
tion, prevent competition among its members, and to advance prices. 
The cont; act operating to accomplish these ends was held void. 
Cummings v. Union Blue Stone Co., 164 N. Y., 401. 

(II) A large number of stenographers in the city of Chicago 
entered into an agreement for the purpose of increasing the price of 
their services by preventing the cutting of rates below a fixed standard. 
Some of the parties to the agreement violated it and suit was brought 
against them by others. The court held that no damages could be 
recovered for the violation of the contract, because it was for the 
suppression of competition, and therefore void. 
More v. Bennatt, 140 111., 69. 

84. (c) Contracts to Influence Public Officials. — A con- 
tract to render lobbying service, or to influence public officials 
by indirect and under-handed means, or for a fee contingent 

upon certain legislation being enacted, is void. 



CERTAINTY AND LEGALITY OF OBJECT. 45 

Illustration. — Houlton made a contract with Dunn to procure 
certain legislation from Congress, opening for sale pine lands in 
Minnesota in a manner which would give Dunn the first right to pur- 
chase. The service was successfully performed, the legislation was 
enacted and Houlton sued Dunn for $3,500 compensation. The court 
held that the contract was void and that Houlton could not recover 
compensation. 

Houlton v. Dunn, 60 Minn., 26. 

85. (d) Gambling Contracts. — A wager is an agreement 
to pay upon the happening of an uncertain event. Wagers are 
in violation of sound morals. Wagering (or gambling) con- 
tracts are therefore held void by the courts of nearly every 
state in the Union. Election bets, bets upon horse races and 
upon games are almost universally void. 

When money has been deposited with a stake holder for the 
purpose of an unlawful wager, the depositor may recover his 
money from the stake holder by demanding it at any time 
before it has been paid to the winner, and this either before or 
after the bet has been decided. If the stake holder refuses to 
give back the money on demand, he becomes personally liable 
for it to the depositor. 

Illustration.— Hibbard made a bet of $200 with Carter that 
Hibbard's team could trot a certain distance in ,3. specified time. 
Whitwell was stakeholder. Hibbard won the wager. Carter demanded 
back his $200, and Whitwell, ignoring Carter's demand, afterwards 
paid the sum to Hibbard, who had won it. Carter then sued Whitwell 
for the amount and the court gave judgment against Whitwell in 
Carter's favor. 

Whitwell v. Carter, 4 Mich., 328. 

86. (e) Marriage Brokerage.— A contract to procure a 
wife for another is contrary to public policy and sound mor- 
ality. Such contracts are void. 

Illustration. — Autcliff agreed to pay June $50 for finding the 
former a wife. June performed the service and brought suit to 
recover his compensation. The court held that the contract to pay 
for such service was unenforcible. 

Autcliff v. June, 81 Mich., 477. 



46 PRACTICAL LAW. 

87. (f) Usurious Contracts. — The maximum rate of 
interest that may be charged is fixed by statute in most of the 
states of the Union. When a contract, directly or indirectly, 
requires payment of a return to the lender, or his agent, exceed- 
ing the maximum rate allowed by law, it is said to be usurious. 
Usury ordinarily works a forfeiture of a part or of all of the 
interest, and in a few states avoids the contract. (For interest 
rates and penalties for usury in all states, see Appendix, Table 
C.) 

88. (g) Contracts for Immoral Purposes.— Morality being 
necessary to public welfare, the courts will not enforce con- 
tracts for the furtherance of immoral purposes. 



CHAPTER IX. 



CONSTRUCTION OF CONTRACTS. 

89. Words. — When the parties have put their contract into 
words, the question arises, What do the words used mean? 
The act of ascertaining the intent of the parties from the ex- 
pression they have used is called Construction. 

In construing a contract, common words are to be given 
their plain, obvious and ordinary meaning. Technical words 
and trade terms .are to be given their special significance, 
unless a different intent is evident from the instrument itself. 

Words are construed most strongly against the party using 
them, as it is presumed that he has used language as favorable 
as possible to himself. A contract is to be so interpreted to 
give effect to every word used. When ellipses occur for the 
sake of brevity, the court may construe the contract as though 
the ommitted expressions had been used. 

Illustration. — The following note was brought before a court 
for construction : 

"Detroit, July 20, 1855. 
One year, August 15th, after date we promise to pay to the 
order of H. N. Yyalker $2,500, at Michigan Insurance Bank, value 
received with interest. 

(Signed) V. A. Ripley & Co." 

At the trial it was contended that the words "August 15th" were 
without meaning, and that the note fell due one year from July 20, 
1855, but the court held that these words must be so construed as to 
make them effective, if possible. The Justices therefore held that 
the note should be read as though written "one year from August 15 
next after date we promise to pay," etc. 

Washington County Bank v. Jerome, 8 Mich., 495. 

47 



48 PRACTICAL LAW. 

90. Clerical Errors. — The law supplies omissions caused 
by errors that are obviously clerical. 

Illustrations. — (I) A contract was made for the building of 
a grand-stand at a race course. The grand-stand was to cost $133,000 
and was to be finished by a certain day. A penalty of $100 per day 
was to be paid for every day elapsing between the date set for com- 
pletion and the date of actual completion. In expressing this, sub- 
stantially the following words were used: "In case said party of the 
first part shall ... to fully complete the work within the time limited, 
he shall pay said party of the second part the sum of $100 for each 
and every day of such default." 

It was argued that this provision was inoperative because its 
opening line contained no effective verb. But the court held that the 
omission of the word "fail" was obviously clerical, and that the line 
must be construed as though written, "In case said party of the first 
part shall fail to fully perform," etc. 

Wallis Iron Works v, Monmouth Park Association, 
55 N. J. L., 132. 

(II) A note was written "payable five years from date at six 
and a half per cent per annum, payable semi-annually." The court 
held that the omission of the words, "with interest" was immaterial, 
and that the note was to be construed as though written, "with inter- 
est at six and one half per cent per annum," etc. 
Marston v. Bigelow, 150 Mass., 45. 

91. Double Construction. — When a contract is capable of 
two constructions, the one which will make it operative will be 
chosen in preference to the one which will make it inoperative. 

Illustration. — Parties contracted with dealers *for sufficient coal 
to meet their requirements for a given time. Construed as an option 
to buy coal for future delivery for a speculative purpose, this contract 
would have been void under an Illinois statute prohibiting such 
options. Construed as an arrangement to buy such coal as the pur- 
chasers required for carrying on their milling business the contract 
was valid. The court adopted the latter construction. 

Minnesota Lumber Co. v. Whitebreast Milling Co., 160 111., 85. 

92. Satisfaction. — When it is contracted that a certain 
thing shall be to the satisfaction of another, as, for example, 



CONSTRUCTION OF CONTRACTS. 49 

that certain machinery shall work to the satisfaction of the 
purchaser, the person whose opinion is to be thus consulted is 
the sole judge of whether or not he is satisfied. If dissatisfied 
he may cancel the contract. 

Illustration. — Ellis bought a Piano binder under a written 
agreement containing the following clause : "The binder is to do 
good work and give satisfaction." If the binder proved unsatisfactory, 
it was agreed that Ellis was to return it to the seller and pay for the 
work it had done during the test. After cutting a quantity of grain, 
Ellis notified the seller that the machine's work was unsatisfactory. 
The court held that this decision was binding, and that Ellis could not 
thereafter be compelled to pay the purchase price. 

Piano Manufacturing Co. v. Ellis, 68 Mich., 101 

93. Negative Contracts. — When a contract provides that 
one of the parties to it shall not do a certain thing, breach of 
the contract may be enjoined by the courts. 

Illustration. — A singer agreed not to sing elsewhere than at the 
plaintiff's theatre. While it is evident that the court could not compel 
the vocalist to sing anywhere, it could and did restrain her from 
singing elsewhere. 

Lumley v. Wagner, 13 Eng. L. & Eq., 252. 

94. Reasonable Time. — When an act is promised to be 
done, and no time of performance is set, the law will say that 
the act was to be done within a reasonable time. 

Illustration. — The following note was executed : 

"Chicago, Nov. 1, 1883. 
For value received I promise to pay to S. F. Smithers $2,048.25, pay- 
able at my convenience and upon this express condition, that I am 
to be the sole judge of such convenience and time of payment. 

(Signed) A. Junker. 

Suit was .^brought upon this note, and Junker maintained that the 

obligation was not due, although more than five years had elapsed since 

the note had been given. The court held that the note was evidence 

that the parties intended that Junker was to pay sometime, and that 

3 



50 PRACTICAL LAW. 

since no definite time was stated, suit at the end of a reasonable time 
might be brought. The court held that Smithers had waited a 
reasonable time and that the note was therefore due. 
Smithers v. Junker, 41 Fed. Rep., 101. 

95. Contracts Partly Written and Partly Printed. — 

When a part of a contract is a printed form, and a part is 
written words, and the written words are in conflict with the 
printed portion of the contract, the written words control. 

Illustration. — The Mansfield Machine Works sold' to the 
village of Lowell, a fire-engine and attachments. The printed part of 
the contract showed an absolute sale, but the village attorney had 
written a conflicting clause in the contract form, showing the sale 
to be conditioned upon subsequent acceptance of the engine and 
attachments by the village council. The court held that the contract 
was therefore conditional. 

Mansfield Machine Works v. Common Council, 62 Mich., 546. 

96. Writing not Varied by Parole. — When a contract 
has been reduced to writing and executed by the parties, all 
preliminary understandings and agreements are merged in the 
written agreement. To all intents and purposes the prelim- 
inary, verbal agreements cease to exist. 

Illustration. — Johnson rented a farm under a written lease. 
Later, he attempted to recover damages from the lessors on account of 
their failure to do certain ditching upon the premises. The lease did 
not mention the ditching, but Johnson relied upon a verbal agreement 
which he claimed was made between himself and the lessors at or 
before the time of the execution of the lease. The court held that 
Johnson must rely upon his written agreement, and that he could not 
be heard to give evidence of any preliminary verbal understanding. 
Diven v. Johnson, 117 Ind., 512. 

97. The Law of Place. — -As a general rule, a contract 
valid where made is valid everywhere, and a contract invalid 
where made is invalid everywhere. 

When a contract is made in one state or country to be 
performed in another state or country, the law of the place 



CONSTRUCTION OF CONTRACTS. 5 1 

of performance governs the contract, unless the parties have 
agreed otherwise. 

When a contract is both made and to be performed in one 
and the same state, the law of the place where the contract is 
made governs. 



CHAPTER X 



TERMINATION OF CONTRACTS. 

98. How Contracts are Terminated. — In general, con- 
tracts are terminated, by 

(a) Performance, 

(b) Substitution, 

(c) Cancellation, 

(d) Rescission, 

(e) Breach, or 

(f) Limitation. 

99. (a) Performance.— When both parties have performed 
all that they have agreed upon, the contract is at an end. 

100. Impossibility of Performance. — If performance be- 
comes impossible by reason of the destruction of the subject 
matter of the contract, or by reason of the death of. one or 
more of the parties, performance will be excused. But if the 
impossibility arose through some intervening cause which the 
parties should have provided against in their contract, per- 
formance will not be excused. 

Illustrations. — (I) Performance excused. A contract is avoided 
by the subsequent enactment of police regulations, making its per- 
formance illegal. 

Destruction of a music hall by fire releases both parties from an 
obligation for the use of the hall for future entertainments. 

An agreement to play a piano at a concert is excused by the 
incapacitating sickness of the promissor. 

A contract for the services of an animal is excused by the death 
of the animal. 

52 



TERMINATION OF CONTRACTS. 53 

(II) Performance not excused. An agreement to have a house 
completed at a certain date is not excused because the house is burned 
when near completion, for the parties should have provided against 
such an happening by their contract. 

An agreement on the part of a school teacher to teach during a 
certain term is not vitiated by the fact that the school is necessarily 
abandoned because of prevalence of an epidemic of small-pox in the 
community. Such a contingency should have been foreseen and 
contracted against. 

For the same reason inability to furnish promised funds is not 
excused by a sudden panic. 

A contract to deliver goods of a certain quality is not excused 
because of the impossibility of procuring such goods in the market, 
or because it is impossible to procure means of transportation. 

These examples indicate the necessity for the exercise of fore- 
thought in arranging the terms of contracts. 

ioi. (b) Substitution. — By mutual consent, a new contract 
may be made to wholly take the place of the original agree- 
ment. When this is done, the old contract is terminated and 
the new one is in force. No new consideration is required to 
support the new contract. 

102. (c) Cancellation. — By mutual agreement, the parties 
may cancel the contract. This may always be done in writing. 
Moreover, a written agreement may be changed or cancelled 
by a verbal agreement to that effect, made afterwards, except 
when the contract is of a class required by law to be in 
writing. 

Illustration. — A contractor made an agreement in writing to 
perform certain work for a land owner. Later, the contractor and the 
land owner agreed verbally that the written contract should be can : 
celled. The court held the verbal agreement valid and that the written 
agreement was terminated thereby. 

Blangborne v. Hunger, 101 Mich., 375. 

103. (d) Rescission.— A contract is voidable when one or 
both parties to it have the right to either treat it as binding, or 
to disaffirm and repudiate it at pleasure. The act of disaffirm- 
ance is called Rescission. 



54 PRACTICAL LAW. 

Thus, the voidable contract of a minor with an adult may 
be either enforced against the adult or repudiated by the infant, 
as the infant chooses. 

Contracts made under duress, and the voidable contracts of 
married women, lunatics and drunken persons may be re- 
scinded. 

Contracts in which the opposite party has defaulted may be 
rescinded. 

Contracts induced by fraud, false representations, and 
mutual mistake of facts are subject to rescission. 

104. Fraud. — The intentional and successful employment 
of any cunning, deception, or artifice used to circumvent or 
cheat another is Fraud. 

Illustration. — Gibbs, a man of defective eyesight, signed three 
instruments, two of which had been read to him, and a third which 
he was told was "just the same as the other two." The first two 
instruments were contracts which he intended to execute. The last 
instrument proved to be a promissory note which he had no intention 
of executing. His signature to the note was obtained by the fraudu- 
lent statement that it was just the same as the other papers, and by 
placing it before him in such a manner that he saw only the line on 
which he signed. An innocent purchaser acquired the note and 
brought suit upon it. The court held that Gibbs might disaffirm the 
instrument even as against this innocent holder. The fraud rendered 
the note no better than a forgery. 

Gibbs v. Linabury, 22 Mich., 479. 

Had Gibbs in the foregoing case, been guilty of negligence 
in failing to read the paper signed, he would have been denied 
the right of disaffirmance. It is a general rule that one who 
signs a document must acquaint himself with the contents. If 
he negligently fails so to do, he must suffer the consequences. 

105. False Representations. — False representation of a 
material fact, made with knowledge of its falsity, or with the 
reckless abandon as to whether it be true or false, and which is 
intended to mislead and does mislead the opposite party to 



TERMINATION OF CONTRACTS. 55 

his injury, is sufficient ground for the rescission of a con- 
tract. 

Illustration. — Durfus, et al, brought suit against Vollmar, et al, 
for the recovery of $1,800 paid the latter for 200 acres of pine land 
purchased by Durfus and his associates under the following circum- 
stances : after some preliminary correspondence, Durfus had been 
induced to go to look at the land. He was told by Vollmar's agent 
that there were 2,000,000 feet of pine there. In addition to this, 
under pretense of showing him the land under negotiation, Vollmar's 
agent took Durfus to a tract of heavy pine a mile distant from the~ 
parcel finally purchased, which the agent represented this to be. Durfus 
and his associates, in reliance upon the acts and statements of Voll- 
mar's agent, concluded a purchase. Soon after, they discovered that 
they had been deceived; that the Lnd sold them was not the land 
shown Durfus, and that the 200 acres conveyed to them did not 
contain 2,000,000 feet of pine. The court permitted Drufus and his 
associates to rescind the contract because of the misrepresentation, 
and to tender back the land, and to recover from Vollmar and his 
associates the purchase price. 

McKinnon v. Vollmar, 75 Wis., 82. 

106. Opinion. — An expression of opinion, where both 
parties are in an equal position to judge the truth or falsity of 
the expression, and where each party relies upon his own 
judgment, will not afford ground for the rescission of a con- 
tract. Thus, a statement that an article covered by patent is 
useful, or that a location is a good one for business, or that an 
unworked mine is rich, or that a well is inexhaustible, or that 
a certain amount of securities will have been sold by a certain 
date, or that land will produce a certain number of bushels of 
grain per acre, are all matters of opinion, and their falsity will 
not be sufficient reason to justify the rescission of a contract 
made in reliance thereupon. Thus, mere trade talk by one who 
extols the value of property which he has for sale, where both 
parties are equally able to judge, is not ground for rescission, 
although untrue. 

Illustrations. — (I) A, as an inducement to B to purchase 
certain stock of a corporation, stated that he, A, believed that the 
stock would earn 20% dividends. The court held this to be a mere 



56 PRACTICAL LAW. 

expression of opinion which would not entitle B to rescind the con- 
tract if the stock did not pay 20%. 

Robertson v. Parks, 76 Md., 118. 

(II) A applied for a loan of money on certain land, stating that 
he would soon be able to find a purchaser for the property at a greatly 
advanced price. This was held to be a mere statement of opinion and 
not a false representation, even though the purchaser was not found. 

Spence v. Geilfuss, 89 Wis., 499. 

(III) Allison purchased a saw mill from Ward, et al. To induce 
the purchase, Ward represented that the surrounding country would 
supply enough work to keep the- mill busy. This proved to be untrue. 
Allison attempted to rescind the transaction. The court held that the 
representation was a mere expression of opinion and, as such, even if 
false, did not afford a ground for rescission. 

Allison v. Ward, 63 Mich., 128. 

107. Expert Opinion. — When persons possessing special 
and unusual knowledge on a subject with respect to which 
their opinions are given, express a false opinion intended to 
mislead, such opinion will be treated by the courts as a false 
statement of fact. 

Illustrations. — (I) A statement by an insurance solicitor that 
the dividends on the policy offered for sale will amount to a certain 
sum, and that the history and experience of the company show that 
such results have been and can be accomplished, amounts to a state- 
ment of fact which, if false, will be ground for rescission. 
Beckwith v. Ryan, 66 Conn., 589. 

(II) A statement by the owner that his stock of goods is worth 
a certain sum, accompanied by a refusal to take an inventory on the 
plea of lack of time, is a statement of fact, not opinion, and, if false, 
will sustain rescission of the sale. 

Davis v. Jackson, 22 Ind., 233. 

108. Mistake. — Mistake of an essential fact arising through 
a steadied suppression of facts by one' side, or by a mistake of 
facts on both sides, will generally afford sufficient reason for 
the rescission of a contract. Contracts can not be rescinded 
on account of a mistake of law. Everyone is presumed to know 
the law. 



TERMINATION OF CONTRACTS. 57 

109. Mutual Mistake. — When both parties to a contract 
are in error as to the subject matter of the contract, either 
may rescind. 

Illustration. — Insurance to the amount of $5,000 covering a 
ship at sea was cancelled by mutual agreement of the assured and the 
insurance company. As a matter of fact, the ship had been wrecked 
in a storm some time before the date of the cancellation. Neither 
party knew this. When the loss was discovered, the policy holder 
rescinded the contract of cancellation and asked for payment of the 
$5,000 due under the terms of the policy. The insurance company 
contended that the cancellation of the policy had closed the transaction. 
The court held that, as the cancellation agreement was made under 
a mistaken state of facts on the part of both parties, it was subject to 
rescission, and that rescission of the cancellation reinstated the policy. 
Duncan v. New York Mutual Insurance Co., 138 N. Y., 88. 

no. (e) Breach of Contract.— Violation of a binding 
agreement is a "breach of contract." The innocent injured 
party is entitled to reimbursement for the loss occasioned by 
such violation. 

Illustration. — A manufacturer agreed to supply a contractor with 
shoes which the latter intended to resell to the French government 
for the use of the French armies. The manufacturer guaranteed that 
no paper should be used in the soles. The shoes delivered were found, 
in part, to contain paper-filled soles, and for this reason were rejected 
by the French authorities. The court held that the contractor was 
entitled to reject all of the shoes and to recover from the manufacturer 
the profits that would have accrued had the shoes been accepted by 
the French government. 

Heilbutt v. Hickson, L. R. 7 C. P., 455. 

in. Breach of Implied Contract.— Damages may be re- 
covered for breach of an implied contract as well as for breach 
of an express contract. 

Illustration. — There is an implied contract between a professional 
photographer and his customer, that the negative for which his cus- 
tomer sits shall be used for printing such portraits as the customer 
shall authorize, and none other. Rugg was a photographer. Moore was 
his customer. Without Moore's consent, Rugg made several photo- 
graphs from a negative of Moore which had been taken in the regular 



58 PRACTICAL LAW. 

course of business. The court held that Rugg was liable to Moore for 
such damages as arose by reason of the breach of implied contract. 
Moore v. Rugg, 44 Minn., 28. 

ii2. Inducing Persons to Break a Contract. — In general, 
no action can be maintained for inducing a third person to 
break his contract. The remedy of the injured party consists 
in bringing suit against the opposite party for the breach. 

Illustration. — The owner of the Masonic Temple Theatre, 
Louisville, Ky., made a contract with Abbey, the manager of Mary 
Anderson, for the services of the latter and her company on a certain 
date. The owner of a rival theatre induced Abbey to break his 
contract. It was held that the owner of the Masonic Temple Theatre 
could not recover damages from the owner of the rival theatre but 
must rely for compensation upon an action against Abbey for the 
latter's breach of contract. 

Bourlier Bros. v. McCauley, 91 Ky., 135. 

113. (f) Limitation. — A contract may come to an 
end by a limitation contained in the contract itself, or by 
limitation by law. Thus, if A were to lease a house from B 
for a term of three years, the lease contract would terminate 
by its own limitation at the end of that period and A would 
have no further right to occupy the property, except by B's 
consent. 

So if A were to employ B for a period of one year, the con- 
tract would terminate by its own limitation at the end of the 
year of employment. 

A contract may be terminated, so far as its enforcibility is 
concerned, by limitation of law. This occurs when either party 
to the agreement refuses or neglects to recognize any liability 
upon it for a period of time fixed by law. The laws fixing 
such legal limits are called Statutes of Limitation. (For 
abstract of Statutes of Limitation of all States, see Appendix, 
Table D.) 



CHAPTER XI 



DEFENSES AGAINST CONTRACTS. 

114. Defenses. — When one is called upon to perform a 
contract, he may lawfully refuse compliance for any one or 
more of the following reasons, which we have already dis- 
cussed, namely: 

Want of agreement, 

Want of proper form, 

Want of competent parties, 

Want of consideration, 

Want of certainty, 

Want of legal object. 

Or he may refuse on the ground that the contract has been 
terminated by performance, impossibility of performance, sub- 
stitution, mutual cancellation or rescission. 

There are still other defenses. Among them we shall note, 

(a) Merger, 

(b) Alteration, 

(c) Forgery, 

(d) Bankruptcy, 

(e) The Statute of Limitations. 

115. (a) Merger. — Merger means the losing of the lesser 
in a greater. Thus, conversations, verbal agreements, and 
even written negotiations, leading up to a formal written 
contract are said to be merged in the final written agreement. 
So when there has been a verbal contract, and afterwards a 
written contract is made intended to cover the same subject, 
no suit can be had on the oral agreement. It is merged in the 
written contract. 

59 



60 PRACTICAL LAW. 

Illustration. — Granger agreed verbally with his tenant, Stuebben, 
to extend the latter's lease for a period of three years. Thereafter they 
entered into a written lease for a term of one year. Later, Stuebben 
brought suit to compel Granger to execute a lease running an addi- 
tional two years, to make up the three year term that had been 
verbally agreed upon. The court held that the verbal agreement was 
lost by merger in the written, one-year lease. 
Stuebben v. Granger, 63 Mich., 306. 

116. (b) Alteration. — A person can be held only on the 
contract he has made. If the obligee changes it, even though 
the change may be to the obligor's advantage, the better rule 
is that the obligor is released — that the contract which he made 
has been destroyed by the alteration, and that the contract 
appearing in its stead is one that he never made. He may, 
however, be held liable to an innocent purchaser in cases 
where the alteration was made possible by the obligor's own 
negligence. 

Alteration made by consent of all parties to the agreement 
is valid and does not impair the contract. 

117. (c) Forgery. — Forgery includes both making and 
altering instruments falsely with intent to deceive. Any writing 
may be forged. The crime is not confined to any particular 
part of the document. All forged instruments are void. 

118. (d) Discharge in Bankruptcy. — One who has been 
discharged in bankruptcy is released from all debts and con- 
tractual obligations embraced in the bankruptcy proceedings. 

119. (e) The Statute of Limitations. — To avoid the 
annoyance and injustice arising through suits upon stale 
claims, all states provide statutes which Emit the time during 
which suit may be brought upon obligations. When this time 
has expired the obligation is said to be "barred by limitation," 
or, in popular language, "outlawed.'' An action brought upon 
an outlawed claim may be defeated by proof that suit has not 
been commenced within the time provided by law. The period 
of limitation differs in the several states. (See Appendix, 
Table D.) 



Special Contracts* 



PRINCIPAL AND AGENT, 

PARTNERSHIP, 

THE EMPLOYMENT OF LABOR, 

CARRIERS, 

SALES OF PERSONAL FROPERTY, 

SALES OF REAL ESTATE, 

LANDLORD AND TENANT. 



61 



CHAPTER XII. 



PRINCIPAL AND AGENT. 

120. The Relation. — An Agent is one who acts in the stead 
of another with authority so to do. The Principal is the one 
by whose authority the agent acts. Authority is the power 
delegated to the agent by his principal. 

121. Kinds of Agents. — According to the scope of their 
authority, agents are classified as Special Agents and General 
Agents. A Special Agent is one whose authority is limited 
to a single transaction, or to transactions of a narrow and 
limited nature. Thus, an agent to sell and collect is a special 
agent. A General Agent is one who has power to transact all 
kinds of business relating to an enterprise. 

122. General Agents. — A known general agent binds the 
principal by all transactions performed in relation to the busi- 
ness in which he is engaged and within the scope of his ap- 
parent authority. 

Illustration. — Widner was the general agent of Ayer for the 
purchase of timber used in railway construction. At Widner's request, 
Inglish advanced money to meet the cost of sawing certain timber. 
In making the request, Widner was acting within what appeared to 
be his authority, although as a matter of fact his principal had not 
authorized him to borrow money. The court held that Ayer Was 
bound to repay Inglish the money borrowed by Widner, because, in 
procuring the loan, Widner was acting within the apparent scope of 
his authority as the general agent of Ayer. 
Inglish v. Ayer, 79 Mich., 516. 

62 



PRINCIPAL. AND. AGENT. 63 

123. Special Agents. — A special agent binds his principal 
only when he acts within the scope of his actual authority. 
Persons who deal with a special agent must ascertain his 
authority at their own peril. 

Illustration. — Gibson, a traveling salesman for Jackson, Matthews 
& Harris, sold a bill of goods to Meadows amounting to $224.39. 
Before the bill was due, Gibson called upon Meadows and offered a 2% 
discount for immediate payment. Meadows accepted the proposition 
and gave Gibson a check payable to the order of Jackson, Matthews & 
Harris, for the amount of the bill. Gibson indorsed the check as 
follows : "Jackson, Matthews & Harris by Gibson." The National 
Bank of the place paid the check to Gibson, who embezzled the 
amount and absconded. On learning what had happened, Jackson, 
Matthews & Harris sued the bank for the amount of the check. It 
was proved that, while Gibson had authority to collect, he had no 
authority to indorse the name of the firm upon checks collected. 
Inasmuch as Gibson was a special agent, the bank had relied upon 
his apparent authority at its own peril. Gibson's indorsement being 
manifestly a nullity, it followed that the bank had paid the check 
without right. The bank was therefore obliged to again pay the 
amount of the check — this time to the proper parties, Jackson 
Matthews & Harris. 

Jackson, Matthews & Harris v. National Bank, 92 Tenn., 154. 

124. Conferment of Authority. — Authority may be con- 
ferred upon the agent by words, or it may arise through acts, 
or even through a failure to act. When one knows that 
another is assuming to act as his agent, yet makes no objec- 
tion, he can not deny the authority of the agent when such 
denial will injure those who have been mislead by the sup- 
posed principal's silence. Thus, if A states to B in C's pres- 
ence that he, A, is C's agent, B will be protected in relying 
upon such statement if C, hearing it, fails to contradict it. 

Authority may be conferred verbally or in writing. Verbal 
authority is sufficient to authorize the agent to execute a 
written contract. But authority to execute a deed must be 
given in writing. Authority to execute an instrument required 
by law to be under seal must itself be under seal. Authority 
may be conferred by a power of attorney in the following 
form : — 



64 PRACTICAL LAW. 

POWER OF ATTORNEY. 

KNOW ALL MEN BY THESE PRESENTS, That I, John Doe, 
of Chicago, Cook County, Illinois, have made, constituted and ap- 
pointed, and BY THESE PRESENTS do make, constitute and ap- 
point Richard Roe, of Detroit, Wayne County, Michigan, my true and 
lawful ATTORNEY for me and in my name, place and stead, to 
sell at such price and terms as he shall see fit, and upon sale to make, 
execute and deliver to the purchaser a good and lawful conveyance, by 
warranty deed or otherwise, of the following land situate in the city 
of Detroit, Wayne County, Michigan, described as lot numbered eleven, 
in Cass Addition to said city of Detroit, as appears by the recorded 
plat of said addition, provided, that this power of attorney shall, 
unless sooner revoked, be in force for a period of thirty (30) days 
from and after this date, and no longer; hereby giving and granting 
unto Richard Roe, my said attorney, full power and authority to 
do and perform all and every act and thing whatsoever requisite and 
necessary to be done in and about the premises, as fully to all intents 
and purposes as I might or could do if personally present, with full 
power to substitution and revocation, hereby ratifying and confirming 
all that he, my said Attorney, or his substitute, shall lawfully do or 
cause to be done by virtue hereof. 

IN WITNESS WHEREOF, I have hereunto set my hand and 
seal the 2d day of January, one thousand nine hundred six. 
Signed, Sealed and Delivered John Doe (Seal.) 

in Presence of 
Thomas Campbell 
Amos Graham. 



State of Michigan 
County of Wayne 



:} 



SS. 



BE IT KNOWN, That on this 2d day of January one thousand 
nine hundred six, before me, a Notary Public in and for said County, 
personally appeared John Doe above named, who is to me known to 
be the person described in and who executed the above Letter of 
Attorney, and acknowledged the same to be his free act and deed. 

Winter White, 

Notary Public. 
My commission expires March 6, 1906. 
[seal] 

125. Ratification. — Adoption of the act of another, either 
expressly or by receiving the benefits of such act, is called 



PRINCIPAL AND AGENT. 65 

Ratification. Thus, when a principal with full knowledge of 
the facts, accepts the proceeds of an unauthorized act of an- 
other who, without authority, or in excess of authority, has 
assumed to act for him, the principal is bound precisely as 
though the act had been performed with full authority and 
by his express request. Ratification is equivalent to prior 
command. 

Illustration. — Nichols, Shepard & Co. held a mortgage covering 
a ten horse power engine and other property belonging to Shaffer. 
Adams, the company's agent, went to take possession of the property 
under the mortgage. At Shaffer's request, and without authority, 
Adams released the engine and accepted a portable saw mill as 
security in its stead. This mill and the other mortgage property was 
sold under the mortgage and Nichols, Shepard & Co. received and 
kept the proceeds. Afterwards, they made claim to the ten horse 
power engine also, asserting that Adams had no authority to release 
it. But the court held that the unauthorized act of Adams in releas- 
ing the engine and accepting the saw-mill as security in its stead was 
ratified by Nichols, Shepard & Co. through the acceptance of the pro- 
ceeds realized from the sale of the saw-mill. 

Nichols, Shepard & Co. v. Shaffer, 63 Mich., 599. 

126. Authority to Collect. — A general authority to collect 
is authority to receive money, and nothing else, in payment. 
One who pays an agent in something in which the agent has 
no authority to receive does not thereby discharge the debt, 
but may be compelled to pay it over again if the principal 
declines to ratify the agent's unauthorized settlement. 

Illustration. — Clark was a clerk in the office of J. & T. Hurley, 
dealers in coal. Without the knowledge of his employers, Clark 
arranged to pay his personal bills to Watson, a druggist, by delivering 
Watson coal. The transaction ran along over a period of seven years. 
J. and T. Hurley knew nothing of it. Watson made no inquiry. Both 
the Hurleys and Watson had implicit faith in Clark. Finally Clark 
absconded. In examining their books, his employers discovered that 
Watson had been furnished with coal to the amount of about $500, 
for which they had not been paid. Clark had received rent and mer- 
chandise from Watson for nearly the whole of this amount. But 
Clark had no authority to turn the accounts of J. & T. Hurley in 
settlement of his private debts. He had authority to collect for them, 



66 PRACTICAL LAW. 

but authority to collect (unless expressly extended) is authority to 
receive money and nothing else. Clark had exceeded his authority. 
Therefore J. & T. Hurley, his principals, were not bound by his acts. 
They sued Watson and obliged him to pay them cash for the coal for 
which he had already paid Clark in rent and merchandise. 
Hurley v. Watson, 68 Mich., 531. 

127. Duty of Agent. — The highest duty of the agent is 
fidelity to his principal. An agent can not lawfully act 
adversely to his principal's interest. For example, he can not 
act as agent for both buyer and seller, except by consent of 
both parties. To this statement there is one apparent excep- 
tion; one who acts as a mere middle man, simply bringing the 
parties together and leaving them to make their own bargain, 
may lawfully collect pay from both if both have agreed to pay. 
But if the agent's employment involves the exercise of dis- 
cretion, he must act for one principal only. 

Illustration. — Dix, as agent for McNutt, reported a sale of cer- 
tain land of the latter at $450, but did not disclose the purchaser. 
McNutt executed a deed in blank and in this deed Dix inserted his 
own name as grantee. Dix afterwards sold the property for $600. 
The court held that Dix must pay McNutt the $150 profit thus gained. 
McNutt v. Dix, 83 Mich., 328. 

128. Liability of Agent. — An agent may exercise his 
power in such a manner as to bind himself. He does this, 

(a) When he acts for an undisclosed principal ; 

(b) When he expressly pledges his own credit; 

(c) When he does an illegal act. 

Illustration. — A stock broker innocently received and sold a 
stolen stock certificate, the proceeds of which he delivered over to the 
thief. Though innocent, the broker's act was illegal. The owner of the 
certificate held the broker liable for the value of the stock. 
Swim v. Wilson, 90 Calif., 126. 

129. Signature of Agent. — The word "agent" after a 
signature is merely descriptive, and unless it appears from 
the body of the instrument that the agent intended to bind the 
principal and not himself, such a signature as "John Doe, 



PRINCIPAL AND AGENT. 67 

Agent" would in most cases be held to bind the agent only. By 
describing himself as agent, a person does not limit his liability 
any more than if he described himself as "Doctor/' or "Stu- 
dent." To positively bind his principal and to clear himself of 
liability, the agent should sign in the following form: — 

Richard Roe, 
By John Doe, 

his Agent. 

130. Termination of Agency. — An agency may be termin- 
ated by (a) limitation, (b) revocation, (c) insanity, (d) bank- 
ruptcy, or (e) death. 

131. (a) Termination by Limitation. — When the agency 
is special and the special thing to be done has been done, the 
agency is at an end. When the agency is for a fixed time, and 
the time has expired, the agency is terminated. 

132. (b) Termination by Revocation. — In general, the 
principal may always revoke the agent's authority at will. Tc 
this rule there is an important exception: an agency coupled 
with a pecuniary interest on the part of the agent in the subject 
of the agency can not be revoked without first extinguishing 
the interest. 

Illustration. — Baird employed Baker to collect a claim against 
the government. Baker was to be paid a contingency fee of 25% oi 
all proceeds collected. After the work was partly performed, Baird 
employed another attorney. When final collection was made, Baker 
asked for his commission on the amount collected by the attorney last 
employed. Baird refused to pay, claiming that Baker's appointment 
had been revoked. Baird was unable to show that he extinguished 
Baker's interest in the subject matter of the agency, and the court held, 
therefore, that Baker's appointment could not have been revoked, and 
that Baker was entitled to recover from Baird the agreed commission 
upon all sums collected. 

Baker v, Baird, 79 Mich., 255. 

I33» (c) Termination by Insanity. — Insanity, when of- 
ficially determined, terminates the agency. 



68 PRACTICAL LAW. 

134. (d) Termination by Bankruptcy. — The bankruptcy 
of the principal terminates all pre-existing agencies. 

135- (e) Termination by Death. — The death of either 
the principal or the agent instantly terminates the agency. 

Illustration. — Lanaux placed papers in the hands of his clerk, 
instructing the latter to deliver the documents to certain persons who 
would call for them. Before the persons named called, Lanaux died. 
The court held that Lanaux's death ended the clerk's authority to 
deliver the papers to the persons named, and that the papers must be 
turned over to the executors of Lanaux's estate. 
Succession of Lanaux, 46 La. Ann., 1036. 

136. Disregard of Instructions. — When an agent disre- 
gards positive instructions, he will be personally liable to his 
principal for any ensuing loss. But if profit result, it belongs 
to the principal. 



CHAPTER XIII 



PARTNERSHIP. 

137. The Relation. — Any lawful business may be carried 
on by means of a partnership. A partnership exists when two 
or more persons combine their property, labor or skill in the 
transaction of business for mutual profit. 

While the bearing of loss is a usual incident of partnerships, 
it is not essential to the partnership relation. The partners may 
agree among themselves that one or more of their number shall 
not participate in loss. But this agreement will not prevent 
such partners being liable to creditors for partnership debts. 

138. Classes of Partners. — The real members of the firm 
are called Actual partners. The apparent members of the firm 
are called Ostensible partners. Persons who lend their names 
to the firm to strengthen its credit, or its popularity, are called 
Nominal partners. Persons who have a concealed interest in 
the firm are called Dormant or Silent partners. 

All classes of partners are individually liable upon all of 
the debts and obligations of the firm. When a silent partner 
is discovered he may be held to the same extent as any other 
member. 

139. Creation of Partnership. — Among the partners 
themselves, the relation must arise from expressed or implied 
contract. But third persons (i. e. "outsiders") may often hold 
an apparent partner to a partnership liability when no partner- 
ship was contracted for or intended. 

Illustration. — Dunn had a contract for a mile of railway grading. 
Connor let Dunn use his mules for this work, under an agreement that 



70 PRACTICAL LAW. 

Dunn and Connor would share the profits equally. They agreed be- 
tween themselves that Connor should have nothing further to do with 
the work and that he should not be liable for the debts contracted in 
its performance. Nevertheless, because the relation formed fell within 
the definition of a partnership, Connor was held liable for payment of 
the debts contracted in the enterprise by Dunn. 

Brandon & Dreyer v. Connor, 117 Ga., 759. 

140. Kinds of Partnership. — As to their purpose partner- 
ships are either trading or non-trading. If the business of the 
partnership is to buy and sell for profit, it is a trading partner- 
ship. If the business does not consist in buying and selling 
for profit, the partnership is non-trading. Thus, the business 
of farming and raising crops is non-trading ; while the business 
of buying and selling produce is trading. 

141. Trading Partnerships. — Each partner in a trading 
partnership is the general agent of all the other partners in 
the transaction of firm business. As among themselves, the 
partners may limit their authority by contract, but as to third 
parties having no knowledge of such limitation, the authority 
of each partner to bind every member of the firm is absolute. 
Each member of a trading partnership has power to borrow 
money, issue firm notes, mortgage the firm's assets, pledge the 
firm's credit, buy and sell property, and to do all other things 
incident to the partnership business, with or without the knowl- 
edge of the other partners. 

Illustration. — Robards & Swartz were partners in the grocery 
business. Without Robards' knowledge, Swartz gave a chattel mort- 
gage to secure creditors upon indebtedness of the firm. The mortgage 
was held valid. 

Robards v. Waterman, 96 Mich., 233. 

142. Firm Bond, Through Funds Misappropriated. — 

If a partner in a trading -firm borrows money apparently for 
the firm, it is immaterial that he afterzvards diverts the money 
so borrowed to his own private use. The firm will be bound by 
the obligation. 



PARTNERSHIP. Jl 

Illustration. — McLachlan & Linn formed a trading partnership 
under the name of D. A. McLachlan & Co. Linn signed the firm's 
name to notes which he negotiated, ostensibly for partnership pur- 
poses. These transactions were without knowledge to McLachlan. 
The money procured by the sale of the notes was never used for the 
firm, but was appropriated by Linn for his own private purposes. The 
notes were held to be a partnership obligation. 
Stevens v. McLachlan, 120 Mich., 285. 

143. Non-Trading Partnerships. — A member of a non- 
trading partnership can bind the firm only when he has express 
or implied authority so to do. Thus, if a member of a law 
firm, or of a firm of physicians, or of a firm engaged in the 
insurance business or in any other non-trading enterprise, 
were to offer for discount a note signed in the firm name, the 
person taking such note must ascertain at his own peril the 
partner's authority to execute it. If such authority does not 
exist, the partner, or partners, participating in the transac- 
tion, or ratifying it, and no others, can be held liable upon the 
obligation. 

Illustration. — Golden & Lee formed a partnership to carry on a 
real estate, loan and insurance business on commission. They did not 
buy and sell on their own account, but merely accepted contracts and 
employment to act for others. Golden without Lee's consent made and 
negotiated a firm note to the amount of $300. The proceeds of the 
note were not used for partnership purposes. It was held by the 
court that the firm was not bound by the transaction. The partner- 
ship being non-trading, Golden had no general authority to bind the 
firm's credit. 

Lee v. First National Bank, 45 Kansas, 8. 

144. Good Faith. — A partner can not act as the agent of 
his firm in making a contract with himself. Thus, a partner 
has no authority to loan himself the firm's money. 

Illustration. — A owed B $1,000 on a private debt. A was a 
partner and also the cashier in a private bank. A notified B that he 
had placed $1,000 to B's credit on the bank's books, and thereafter 
honored B's checks to that amount. As a matter of fact the credit 
was never entered on the books of the bank and the other partners had no 
knowledge of A's act. The court held that A had no right to loan 



J2 PRACTICAL LAW. 

himself a $1,000 with which to pay B, and that B's checks for that 
amount were mere overdrafts, and that B must return to the bank the 
$1,000 so overdrawn. 

Williams v. Dorrier, 135 Pa., 445. 

145. Suits by Partners. — In general, a partner can not 
bring suit at law against his co-partners upon obligations aris- 
ing in the course of the firm business. The reason for this is 
that one person can not be both plaintiff and defendant in the 
same suit. For one to sue a partnership of which he is a 
member would be, in effect, the bringing of a suit against 
himself. 

If a partner has been unfairly dealt with, his only remedy 
is to go into a court of equity and ask for an accounting. 

146. Sharing Profits and Losses. — In the absence of an 
agreement to the contrary, partners must, as among themselves, 
share the profits and bear the losses of the concern equally 
and without advantage to one partner over another. But they 
may agree upon any other basis of division, and, as among 
themselves, the agreement will be valid. It should be remem- 
bered, however, that no agreement among the partners will pre- 
vent creditors of the firm collecting all of the partnership's 
debts from any one of the partners. All are individually liable 
for all of the firm's obligations. 

147. Compensation. — In the absence of an agreement to 
the contrary, partners are not entitled to compensation for 
services rendered for the firm. Each partner is entitled to his 
share of the profits, and to nothing more. Thus, if a partner 
falls sick, the other members of the firm must carry on the 
business without increased compensation, and must divide the 
profits precisely as though the services of the absent partner 
had been constantly devoted to the business. 

So, if a partner dies, the other partners can not exact com- 
pensation for their services in closing up the firm's affairs. 

Illustrations. — (I) Elijah W. Waters & Daniel H. Waters were 
co-partners in the manufacturing business. On account of illness, 
Elijah was absent from their place of business during some months 



PARTNERSHIP. 73 

preceding the time of his death. During Elijah's absence, Daniel 
managed the business, doing all the work formerly performed by the 
two. By so doing he rendered extra services valued at $3,100. This 
amount was paid him from Elijah's estate, but was afterwards recov- 
ered back by the estate on the ground that Daniel was not entitled to 
compensation for extra services rendered in carrying on the partner- 
ship's business. 

Heath v. Waters, 40 Mich., 457. 

(II) Raymond & Vaughan were partners in the sugar brokerage 
business in Chicago. Vaughan was adjudged insane by the county 
court and was committed to an asylum. Here he remained during 
several years and until his recovery. During this period Raymond 
carried on the business profitably. Upon regaining his health, Vaughan 
asked for an accounting, and that his share of the partnership profits be 
delivered over to him. This was granted by the court. 
Raymond v. Vaughan, 128 111., 256. 

148. Dissolution. — A partnership may\ be dissolved, (a) 
by mutual consent, (b) by withdrawal of one of the partners 
through sale of his interest in the concern, (c) by the bank- 
ruptcy of one of the partners, (d) by the death of a partner. 

A dissolution may be decreed by a court, (a) when any 
partner becomes incapacitated by insanity, imprisonment, or 
other causes of more than a merely temporary nature, or (b) 
for fraud on the part of one or more members of the firm. 

149. Notice of Dissolution. — When a firm has been dis- 
solved, notice of the dissolution should be given to all persons 
with whom the firm has dealings, for, while the dissolution 
revokes the agency of each member to bind the personal credit 
of the others, this revocation does not operate against third 
parties who extend credit to the continuing partners without 
knowledge of the dissolution. 

Illustration. — Victoria Eckhardt withdrew from the firm of Hick, 
Hemel & Eckhardt, May 18, 1889. On June 25, 1889, the firm execu- 
ted two notes. These notes were made in the firm's name and were 
delivered to persons who had dealt with the firm, both before and 
after the retirement of Mrs. Eckhardt therefrom, and who had re- 
ceived no notice, and had no knowledge, of Mrs. Eckhardt's with- 
drawal. Mrs. Eckhardt was held and bound for the payment of the 
notes. 

Sibley & Bearinger v. Parsons, 93 Mich., 538. 



CHAPTER XIV. 



THE EMPLOYMENT OF LABOR. 

150. The Relation. — In law, the employer of labor is 
known as the Master; the employee is known as the Servant. 
The relation must result from express or implied contract. 
No compensation can be recovered for voluntary services ren- 
dered under circumstances which fail to show a mutual ex- 
pectation that payment is to be made. 

Illustration. — Covel, a homeless man of advanced years, went 
to live with Turner, an old friend. It was understood that Covel 
might stay as long as he chose, and that he was expected to help about 
the premises while he remained. There was no evidence that Covel 
expected to charge, or that Turner expected to pay anything for these 
services. Afterwards Covel sued Turner for the value of the services 
rendered. The court held that Turner was under no obligation to 
pay because there was no contract, either express or implied, for 
payment. 

Covel v. Turner, 74 Mich., 408. 

151. Duty of Master. — It is the master's duty to, (a) 
provide the servant with reasonably safe premises and appli- 
ances, (b) to warn the servant of extraordinary dangers known 
to the master, (e) to use reasonable care in selecting safe fel- 
low servants, (d) to pay the servant his wages. 

152. Safe Premises. — Failure to provide reasonably safe 
premises renders the master liable to the servant for any 
resulting damages. 

Illustration. — Johnson was employed in a coal mine as a helper. 
Without his knowledge, a mass of partly loosened coal was permitted 
to remain overhanging a passage where his duties required him to 

74 



THE EMPLOYMENT OF LABOR. 75 

go. This over-hanging coal finally fell upon him, whereby he was 
injured. His master was held liable for the damages. 

Treadwater Coal Co. v. Johnson (Ky.) 61 L. R. A., 161. 

153. Safe Appliances. — The master is not bound to fur- 
nish his servant with the safest known appliances, but the appli- 
ance furnished must be reasonably safe. If they are other- 
wise, the master will be liable for resulting damages. 

Illustration. — Jennie Jacques was employed by the Great Falls 
Manufacturing Co. to operate a loom. A shuttle became loosened and 
the loom-fixer in charge was repeatedly called to repair it. He made 
whatever repairs he deemed necessary and the machinery was again 
set in motion. A short time afterwards, the shuttle flew out of the 
loom, struck Miss Jacques and put out one of her eyes. The evidence 
showed that, when the loom was in a reasonable condition of repair, 
the shuttle could not fly out The court held the employer liable for 
the damages occasioned by the defective loom. 

Jacques v. Great Falls Mfg. Co., 66 N. H., 482. 

154. Warning of Extraordinary Danger. — Danger may 
be extraordinary by reason of the nature of the employment, or 
because of the youth or inexperience of the employee. In 
all such cases it is the master's duty to warn his servant. If he 
fails to do so, he will be liable for resulting injuries. 

Illustrations. — (I) Edward Myhan, a young man, was employed 
as night oiler in the dynamo room of an electrical power plant. Cer- 
tain uninsulated live wires were negligently permitted by the power 
company to run near the floor of this room. Myhan had no knowl- 
edge of the dangerous character of these wires, nor was he ever given 
any notice of the danger by any officer or employee of the company. 
Coming in contact with the wires, Myhan was instantly killed. The 
company was held liable. 

Myhan v. Louisiana Electric Light & Power Co., 41 La. An., 
964. 

(II) Corrigan, a boy under the age of fourteen years, was sent 
by the foreman of a rolling mill to regulate the speed of rapidly 
revolving machinery in a place dangerous to one who was incom- 
petent. The boy was not cautioned nor advised of the hazard incident 
to his post. He was caught in a belt and suffered a crushed limb. 
The employer was held liable. 

Cleveland Rolling Mill Co. v. Corrigan, 46 O. St., 283. 



76 PRACTICAL LAW. 

155. Care in Selecting Servants. — The master must ex- 
ercise reasonable care in furnishing his servants with compe- 
tent fellow servants. If he fails to do this, he will be liable to 
his servants for injuries resulting from the negligently selected 
fellow servant's incompetence. 

Illustration. — Hoover was a railway engineer. A brakeman on 
Hoover's train was in the habit of becoming intoxicated. Owing to 
the brakeman's intoxication, Hoover's train was permitted to descend 
a steep grade without the brakes being properly set. A wreck being 
inevitable, Hoover leaped from the engine to save his life and was 
injured. The master was held liable because of his negligence in re- 
taining the drunken brakeman. The master denied knowledge of the 
brakeman's intemperance, but the court held that, if this was true, 
the master was guilty of negligence in not knowing the brakeman's 
habits, as they might easily have been ascertained by investigation. 
Norfolk & Western Ry. Co. v. Hoover, 79 Md., 253. 

156. Assumed Risks. — A servant assumes the ordinary 
risks incident to the employment in which he engages. He can 
not recover from his master for damages arising from the 
ordinary dangers of the employment. 

Illustration. — Minty was the traveling auditor of the Utah & 
Northern Railroad. While, in the course of his duty, he was riding 
on a train passing over that road, the car in which he was sitting 
became derailed and he was injured. The cause of the accident was 
unknown, hence it was impossible to show negligence on the part of 
the master. The court held that the mere fact that Minty was 
injured while on duty through one of the risks naturally incident to 
the business, gave him no lawful claim for damages. 
Minty v. Union Pacific R. R. Co., 2 Idaho, 437. 

157. Negligence of Fellow Servants. — When a servant 
is injured through the negligence of a fellow servant engaged 
in the service of the same master and working to accomplish 
the same general object, the master will not be liable, unless 
he has been negligent in the selection or retention of the ser- 
vant whose negligence caused the injury. The servant assumes 
the risk of negligence on the part of his fellow servants, pro- 
vided the master has selected them with due care. 



THE EMPLOYMENT OF LABOR. "]J 

Illustrations. — Scofield was employed as a workman at a 
smelting furnace. There was a pit filled with scalding water on the 
premises. The pit was duly provided with coverings which the work- 
men were instructed to place over it when not in use. On the night of 
the accident, some of Scofield's fellow workmen left the pit uncovered. 
Scofield walked through the opening and was scalded to death. Suit 
was brought against the master, but, it being shown that the negligence 
was that of Scofield's fellow servants, the master was held exonerated. 
Scofield v. Guggenheim Smelting Co., 64 N. J. L., 605. 

158. Contributory Negligence. — When a servant's own 
fault contributes to his injury, the master can not be held liable. 

But if the master instructs the servant to go into a place 
of danger, the master can not escape liability if the servant 
obeys and is injured, unless the risk was so glaring that a 
prudent man would have disobeyed the order. 

Illustration. — Ward was sent into a deep ditch by the express 
order of his master. He did not appreciate the danger, although the 
place was obviously dangerous. The ditch caved in and Ward was per- 
manently injured. He brought suit against his master who attempted 
to escape liability on the theory that Ward was guilty of contributory 
negligence. Ward's master was held liable. 

Norfolk & Western R. R. Co. v. Ward, 90 Va., 687. 

159. Payment of Servant. — The final duty of the master 
is to pay the servant according to contract. If no amount has 
been agreed upon, the servant will be entitled to recover such 
an amount as his services are reasonably worth. 

When a servant continues to serve after the termination of 
a definite contract, it will be presumed, in the absence of an- 
other agreement, that he continues at the same rate of com- 
pensation originally provided. When a servant, employed by 
the month or by the year, renders extra services in the general 
line of his employment, his regular salary will be presumed to 
cover such extra service, unless there has been a special agree- 
ment by the master to pay additional compensation. 

If the master fails to pay his servant at the time and in 
the manner agreed upon, the failure amounts to a breach, for 
which the servant may declare the contract terminated. 



?8 PRACTICAL LAW. 

160. Duty of Servant. — It is the duty of the servant to 
serve faithfully and with sobriety, and to obey all the reason- 
able commands of his master. 

161. Discharge. — A servant may be lawfully discharged, 

(a) For such immorality as diminishes the value of his 
services ; 

(b) For want of reasonable skill; 

(c) For habitual neglect of duty; 

(d) For prolonged sickness, but not for mere temporary 
illness ; 

(e) For insubordination. 

162. Wrongful Discharge. — If the master discharges his 
servant without sufficient cause, the servant has his choice of 
two remedies : 

(a) He may treat the contract as rescinded and sue for the 
reasonable value of the service rendered. 

(b) He may treat the contract as still in force and recover 
damage for the breach of it. In this case if the master shows 
nothing in mitigation of damages, the servant is entitled to 
recover the whole amount specified in the original contract for 
the full term of the employment. 

But the master in such case may show in mitigation of 
damages that the servant has obtained, or might have obtained 
by reasonable exertion, other employment in the same line of^ 
business and in the same locality. If this is shown, the amount 
of damages recoverable by the servant will be reduced by the 
amount which the servant has received, or might by proper 
exertion have received, during the period of the breach. Thus, 
if A as master, wrongfully discharged B, a servant, under a 
contract at $200 per month having six months to run, B would 
be entitled to recover from A $1200 less B's earnings, or pos- 
sible earnings, in like employment in the same locality during 
the six months. If B obtained, or might have obtained, em- 
ployment at $100 per month during four months of the period, 
the $400 earned would be deducted from the $1200, leaving 
$800 due B from A. 



CHAPTER XV. 



CARRIERS. 



163. Classes of Carriers. — Carriers are of two kinds, 
private carriers and common carriers. A Private Carrier is one 
who undertakes to carry goods for particular customers only, 
and by special agreement. A Common Carrier is one who 
undertakes to carry for all persons who offer goods and the 
charges of carriage. Railroad companies, express companies, 
steamship companies, teamsters and truck-men are familiar 
examples of common carriers. 

164. Liability of Private Carriers. — A private carrier is 
liable for damage or loss of goods intrusted to him for trans- 
portation, only when the damage or loss arose through his 
failure to use ordinary care. 

165. Liability of Common Carriers. — When their liabil- 
ity is not qualified by contract or by statute, common carriers 
are responsible for all loss or damage during transportation 
arising from any cause whatsoever, except the act of God or 
the public enemy. This sweeping liability of the common car- 
rier is usually expressly limited, and is often entirely ex- 
tinguished by the contract between the carrier and the shipper. 

166. Act of God.^ Under no circumstances can a carrier 
be held liable for a loss or damage arising through an act of 
God. The expression "act of God" means such an irrepressible 
disaster as results immediately from natural causes and is not 
attributable to any human agency. 

79 



80 PRACTICAL LAW. 

Illustration. — A train proceeding over the Denver & Rio Grande 
Railroad was struck by a heavy wind which blew some of the cars 
from the track and caused their destruction. Suit was brought against 
the- railroad company for the value of the goods destroyed in the 
wreck. The court held that the loss was attributable to an act of God 
and that, therefore, the carrier was without liability. 

Blythe & Lehman v. Denver & Rio Grande R. Co., 15 Colo., 
333. 

167. Loss or Destruction of Goods. — If goods under 
transportation are lost or destroyed through means which the 
carrier might have prevented by the exercise of due care, the 
carrier will, in general, be held liable. 

Illustration. — The Johnstown flood so damaged the track of 
the Pennsylvania Railroad that a freight train on which ten barrels 
of whiskey were being transported, was delayed at Connemaugh. The 
train was not injured by the flood, but was abandoned by its crew. 
The whiskey was partly stolen by thieves and partly destroyed by 
citizens to prevent its falling in the hands of dangerous people. Be- 
cause of the desertion of the train, the railroad company was held 
liable for the loss. 

Lang v. Penna. R. Co., 154 Pa., 342. 

168. Loss From Natural Causes. — A common carrier is 
not liable for loss caused by frost, fermentation, evaporation, 
or natural decay, or from the natural wear and tear in trans- 
portation, provided the carrier exercised reasonable diligence 
to render the loss as slight as possible. 

Illustration. — Wilson, a truckman, undertook to transport a 
barrel of molasses from a freight depot to a store. The day was 
excessively hot and, during the transportation, the contents of the 
barrel fermented, burst the barrel and was partially lost. Suit was 
brought against the truckman on the theory that, as a common carrier, 
he was liable for any injury occurring to the goods during transpor- 
tation. Although the truckman had not limited his liability by con- 
tract, the court held that he was not liable for an injury to the goods 
resulting from an inherent quality of the goods themselves. 
Fancher v. Wilson, 68 N. H., 388. 

169. Limitation of Liability. — All courts agree that a car- 
rier may make a valid stipulation with the shipper that the car- 



CARRIERS. 8l 

rier shall not be held liable for loss or damage to the goods 
carried, arising without negligence on the part of the carrier. 
Some courts go even further and hold that a common carrier 
may contract for entire immunity from liability. This is 
particularly true when the carrier contracts for some special 
service out of the ordinary course of his business. 

Illustration. — A railroad company contracted to use its engine 
for drawing the special train of a circus over its line. The train was 
to run on a special schedule and a less rate was charged than was usual 
for transporting similar property. The contract provided that the 
railroad company should not be liable for loss arising from any 
causes whatsoever. During transportation, the circus train ran off 
the track at a misplaced switch. The train rolled down an embankment, 
and twenty-eight horses were either killed or injured. The owner of the 
circus brought suit against the railroad company, claiming that the 
contract exonerating the carrier from liability on account of the neg- 
ligence was contrary to public policy and void. The court sustained 
the contract and held that the railroad company was thereby relieved 
of liability. 

Chicago, M. & St. P. R. Co. v. Wallace, 66 Fed. Rep., 506. 

170. Loss on Connecting Line. — A carrier may make a 
valid stipulation against liability for loss arising on the line of a 
connecting carrier. 

Illustration. — A railroad company received cattle for trans- 
portation from San Antonio to Chicago over its own and a connecting 
line. The shipping contract provided that the carrier should not be 
held for any damage to the cattle occuring after they had passed to the 
line of the connecting carrier. The cattle were damaged after passing 
to another road. The court held that the first carrier was not liable 
for the loss. 

McCarn v. I. & G. N. R. Co., 84 Tex., 352. 

171. Liability for its Own Negligence. — In the absence 
of special reasons, it is generally held contrary to public policy 
to permit a carrier to contract for immunity against liability 
arising from the negligence of itself, its agents and servants. 
Such contracts are quite generally held void. 

172. Stipulation as to Value. — A stipulation that a car- 
rier shall not be held liable for an amount exceeding the valua- 



82 PRACTICAL LAW. 

tion placed upon the goods by the shipper, in consideration of 
which the carrier undertakes to transport the goods at a less 
rate than would be asked if they had been appraised at a higher 
value, is valid. 

Illustration. — A shipper delivered to an express company a box 
of diamonds which he valued at $50. The true value was $579. The 
company charged a less rate for transportation than would have been 
exacted if the shipper had placed a true valuation upon the goods. 
The box of diamonds was lost and the shipper attempted to recover 
from the carrier their true value, but the court held that recovery 
was limited to $50 by the shipper's own act. 
Ballau v. Earle, 17 R. I., 441. 

173. Rules. — Reasonable rules prescribed by common car- 
riers and brought to the attention of shippers will be sustained 
by the courts. 

Illustration. — For the purpose of inducing prompt unloading of 
cars, a railroad company made a rule charging $1 per day upon all 
cars not unloaded promptly. The rule was sustained by the court. 
Miller & Co. v. Georgia R. & B. Co., 88 Ga., 563. 

174. The Bill of Lading. — A bill of lading is both a re- 
ceipt and a contract. It is a receipt for goods delivered to the 
carrier; it is a contract to safely carry the goods so received. 

Bills of lading are evidence of property. A carrier who 
delivers goods to a consignee without production of the bill 
of lading, does so at his own risk. If the goods are delivered 
to one not entitled to receive them, the carrier will be held 
liable. 

175. Draft With Bill of Lading. — When a shipper names 
himself or his agent as consignee and sends a bill of lading with 
a draft attached for collection as a condition precedent to 
delivery, title remains in the shipper, or his assigns, until the 
bill of lading passes into the hands of the consignee by pay- 
ment of the draft. 

Illustration. — A vendor agreed upon the sale of certain mules, 
and received a small payment on the purchase price to bind the bar- 
gain. He shipped the mules consigned to his agents, sending his 
agents the bill of lading and draft, with instructions to deliver the 
mules on payment of the draft. The court held that the mules remained 



CARRIERS. 83 

the property of the shipper until the draft for the remainder of the 
purchase price was paid. 

Bergeman v. I. & St. L. R. Co., 104 Mo., 77. 

176. Discrimination in Rates. — A common carrier has 
no right to discriminate between members of the public. The 
carrier must serve all alike and for like compensation. 

Illustration. — The traffic rate for live stock from Newton, la., to 
Chicago was $60 per car. Cook & Wheeler paid this rate upon 316 
car loads of stock. They then discovered that the railroad company 
was making a secret rebate from $3 to $20 per car to other shippers. By 
computation it was found that Cook & Wheeler had paid $2,733.98 more 
than their competitors upon a like number of cars shipped from the 
same point. The court permitted Cook & Wheeler to recover back 
this excess charge from the railroad company. 

Cook & Wheeler v. Chicago R. I. & P. R. Co., 81 la., 551. 

177. Stoppage in Transitu. — When a shipper, while 
goods are in the hands of the carrier, discovers that the con- 
signee is insolvent, he may stop delivery of the goods by giving 
the carrier notice not to deliver them. This is known as 
"stoppage in transitu." The carrier may lawfully require 
indemnity from the shipper before making the stoppage 
effective. 

The right of stoppage in transitu is based upon the plain 
principle that one man's goods should not be used to pay 
another man's debts. The right can be exercised only in cases 
where the vendee's insolvency was unknown to the vendor at 
the time of sale, or when it occurred after the sale. It must 
be exercised, if at all, before delivery of the goods has been 
made to the vendee. After delivery, it is too late. 

If the vendor knew that the vendee was insolvent at the time 
of sale, and chose to take the risk, he cannot afterwards exer- 
cise stoppage in transitu. 

Illustration. — A firm sold goods to Twist, knowing him to be 
insolvent. The goods were shipped by rail and were attached before 
arriving at their destination. The vendors claimed the goods under 
alleged right of stoppage in transitu. Held, they did not have the 
right, because of their knowledge of Twist's condition at the time of 
sale. 

Fenkhausen v. Fellows, 20 Nevada, 312. 



CHAPTER XVI 



SALES OF PERSONAL PROPERTY. 

178. Sale. — Sale is a contract by which one, called a 
"vendor," transfers property to another, called a "vendee," for 
a consideration called "purchase price" paid or to be paid. 

When the purchase price is payable in property, the trans- 
action is barter or exchange. 

179. Title. — One who purchases property takes it subject 
to all defects in the title of his vendor. As to all property, 
except negotiable instruments, the maxim caveat emptor (let 
the purchaser beware) applies. In general, if the vendee has 
bought property which his vendor did not own and had no 
right to sell, the true owner, or the person entitled to possession, 
may retake it. 

180. Bill of Sale. — When a sale is made of chattels so 
situated that physical delivery is impracticable, it is often 
necessary and always safe to have the vendor execute and 
deliver a written bill of sale to the vendee. This instrument 
may be in the following form: — 

BILL OF SALE. 
This Bill of Sale, made this second day of January, 1906, between 
Richard Roe, of Detroit, Michigan, as vendor, and John Doe, of 
Chicago, Illinois, as vendee, 

WITNESSETH, that the said vendor, in consideration of One 
Hundred Dollars, to him paid by said vendee, receipt whereof is 
hereby confessed and acknowledged, has bargained and sold, and does 
hereby assign and transfer unto said vendee, the following described 
property, to wit : — 

One bay horse, called "Tom," specially marked by 
star in forehead, and a white left hind foot. 

84 



SALES OF PERSONAL PROPERTY. 85 

One single, top buggy, made by Studebaker Bros., 
hereby warranting that said vendor at the time of execution and 
delivery hereof is the sole owner of the property herein sold and trans- 
ferred, and that the same is free from all liens and incumbrances. 

Richard Roe (L. S.) 

181. Requisites of Sale.— Three things are necessary to 
constitute a valid sale : — 

(a) The thing to be sold, which must be in existence ; 

(b) A determinable or a determined price; 

(c) An intent to pass title from the vendor to the vendee. 
If the thing sold is not in existence at the time of the sale, the 
sale will be invalid. Thus, if one man sells to another a horse, 
and the horse is dead, or if he sells a cargo, and the ship has 
sunk, or if he sells a house and it has been burned, both parties 
being ignorant of the fact before sale, the transaction is void. 

But if only part of the property has been destroyed, the 
vendee may elect to rescind or affirm the contract as to the 
remainder. 

182. Change of Ownership. — In every sale there is a 
moment when the property sold ceases to belong to the vendor 
and becomes vested in the vendee. Until this occurs, the sale 
is incomplete, and the property, if lost or destroyed, is the loss 
of the vendor. Clearly, if the property is lost or destroyed 
after the sale is complete, the loss must fall upon the vendee. 

In determining whether or not title has passed, the intent of 
the parties controls. This intent is determined by examining 
the words and acts of the parties in the lig'ht of the surrounding 
circumstances. There are no positive and inflexible rules by 
which the intent may be invariably ascertained. The courts are 
guided, however, by the principles set forth in the six sections 
next following. 

183. (a) Sales for Cash. — When a sale is for cash, title 
passes upon payment being made, and not before. 

Illustration. — Price bought 50 tubs of butterine in Kansas City 
for shipment to Ft. Scott. The agreement was that cash was to be 
paid for the goods upon their arrival at destination. The invoices 
were marked, "Terms cash." 



86 PRACTICAL LAW. 

The butterine was not paid for on arrival, but was, instead, seized 
by Price's creditors. The vendors brought replevin, claiming that title 
had not passed to Price, but was still in them. The court sustained 
the vendors' contention and restored them their goods. 
Daugherty v. Fowler, 44 Kansas, 628. 

All sales are for cash, unless credit has been agreed upon, either 
expressly or by an established course of dealing. Had the invoice in 
the above case been made "Terms, cash in 10 days," title would have 
passed to Price with delivery, and the vendors could not have recovered 
the property. 

184. (b) Sales on Credit. — When terms of credit have 
been arranged and the property sold has been set aside or 
designated, so that nothing remains to be done by the vendor 
before making delivery, title will pass at once to the vendee, 
unless the parties have agreed otherwise. 

Illustration. — A quantity of lumber had been selected, measured 
and piled up on a wharf to be loaded on boats for the vendee. Before 
the arrival of the transports, the lumber was burned. The sale having 
been made upon credit, it was held that the title had vested in the 
vendee and that the loss was his. He was, therefore, required to pay 
the vendor for the lumber, precisely as though it had not been 
destroyed. 

Whitcomb v. Whitney, 24 Mich., 485. 

185. (c) Condition Unperformed by Vendor. — When 
something remains to be done by the vendor to ascertain the 
identity (as by selecting), the quantity (as by measuring), or 
the quality (as by testing) of the thing sold, or if the thing sold 
is to be put into a certain condition before delivery, these, or 
any of these facts go to prove that title has not passed to the 
vendee. 

Illustration. — A contract was made for the sale of certain millet, 
then standing, with the provision that the millet was to be cut and 
stacked. Held, that no title passed to the vendee before the condi- 
tion of cutting and stacking had been performed. 
Hughes v. Wiley, 36 Kansas, 731. 

186. (d) Delivery to Vendee. — When goods are sold on 
credit without reservation of title by the vendor, delivery of 



SALES OF PERSONAL PROPERTY. 87 

the goods to the vendee is evidence that title has passed to 
him. 

Delivery of goods to a common carrier designated by the 
vendee (or to any common carrier if he has not designated 
one), for unrestricted shipment to the vendee, is delivery to the 
vendee. The common carrier is the agent of the vendee. 
Such delivery is subject to the right of stoppage in transitu, 
in case the vendee is found to be insolvent before the arrival 
and deivery to him of actual possession of the goods. 

But delivery to the carrier of goods shipped C. O. D. is 
not delivery to the vendee, and in that case neither possession 
nor title will pass to the vendee until payment has been made. 

187. (e) Consigned Goods. — When goods are "'con- 
signed," to be paid for when sold, no title passes to the con- 
signee. If the goods "consigned" are destroyed, the loss must 
fall upon the consignor, unless the parties have otherwise 
contracted. The consigned goods cannot be lawfully levied 
upon by the creditors of the consignee. 

The laws of the several states are not uniform concerning 
consigned property. Some states require the consignor to give 
publicity, in some manner, to the fact that the goods are con- 
signed and not sold. Failing of this, in such states, the con- 
signor is subject to the loss of important rights. When con- 
signments are extensive, they should be made only pursuant to 
carefully drawn contracts. The relation between consignor 
and consignee is that of principal and agent. It is governed 
by the law of agency. 

Illustration. — The case of National Bank v. Goodyear, 90 Ga., 
711, gives a fair outline of the items commonly embraced in a consign- 
ment contract. In that case the contract contained stipulations that (a) 
the consignee should receive goods to be sold by him as agent of the 
consignor; (b) that the consignee was to make monthly reports of the 
sales effected and of the goods unsold remaining on hand; (c) title 
to all unsold goods and to the proceeds of all sales was to be and 
remain in the consignor; (d) remittances for goods sold were to be 
made promptly at the time of sale; (e) The consignee was to pay 
all freight, storage and other charges, and to keep the goods insured 
for the benefit of the consignor, all at the consignee's expense; (f) 



88 PRACTICAL LAW. 

the consignee was to have as his sole compensation, whatever the goods 
sold for above the invoice price; (g) the consignor reserved the right 
to terminate the agency, and to retake the consigned goods. 

The court held that, under this arrangement, title remained in the 
consignor. 

188. (f) Express Reservation of Title by Vendor. — 

Title does not pass to the vendee until full payment is made, 
if such is the express provision of the sale. This is a valid 
provision as between vendor and vendee in all states. A few 
hold that such an arrangement is void as to creditors and as 
to third persons who take the property from the vendee without 
notice of his want of title. 

When a vendor desires to retain title, it is a common 
practise to require the vendee to execute a title note, which 
may properly be in the following form : — 

Detroit, Mich., January 2, 1906. 
$30.00 

On or before one year after date, I promise to pay to the order 
of John Doe, the sum of Thirty Dollars, value received, with interest 
at six per cent, per annum, payable semi-annually, at Home Savings 
Bank, Detroit, Mich. 

This note is given for the purchase price of the following described 
personal property, to-wit : One set of sixteen volumes of Whytes 
Briefs, bound in buckram, this day agreed to be sold by said John Doe, 
the payee of this note, to Richard Roe, the maker of this note, it 
being expressly agreed by both of said parties, that the title, owner- 
ship, and right of possession in and to said above described property 
shall be retained by and remain in said John Doe until the whole 
amount of this note, including interest, shall be paid in full, this being 
the only memorandum of such agreement. 

(Signed) Richard Roe. 

189. Inspection of Goods.— The vendee should promptly 
inspect goods delivered to him. If the goods were sold to 
him as being of a certain kind and quality, he may lawfully 
reject them if they prove to be of an inferior kind or quality. 
But to exercise this right, he must act promptly. Unreasonable 
delay in making inspection will be construed as acceptance. 

Reception of goods after inspection, or after fair oppor- 
tunity to inspect, waives all objections as to the kind and 
quality. 



SALES OF PERSONAL PROPERTY. 89 

Illustration. — Dealers purchased wheat which the vendor agreed 
should grade No. 2. The vendees inspected the grain and reshipped it 
to another destination. On arrival there, it fell below the grade agreed 
upon. The court held that the vendees had accepted the grain, and 
that they had thereby waived all object to its quality. 
Jones v. McEwan, 91 Ky., 373. 

190. Latent Defects. — Latent defects, not discoverable by 
usual and reasonable methods of inspection are not waived by 
acceptance after such inspection. 

Illustration. — Miller & Co. bought of Moore, Sims & Co., a quan- 
tity of No. 2 white mixed corn. Three cars were delivered, inspected 
and accepted. The inspection was made by digging into the corn a foot 
or more as it lay in bulk in the cars. When vendees transferred the 
corn from the cars to their elevators, they found it "false packed," 
and that, beginning some two feet below the surface, it was musty and 
"blue-eyed." Although the false packing was not the work of the 
vendors, and although they had no knowledge of it, they were held 
liable to Miller & Co. for the amount of the latter's damages. 
Miller v. Moore, 83 Ga., 684. 

191. Quality of Goods. — When goods are purchased in 
vague and general terms, there is an implied warranty that the 
goods shall be of merchantable quality. 

Illustration. — Merchants purchased a quantity of ice. It proved 
unmerchantable. The court held that the vendor had broken an implied 
warranty, which was, that the ice should be merchantable. 
Murchie v. Cornell, 155 Mass., 60. 

192. Purchase by Particular Description.— When prop- 
erty is purchased by a particular description, there is an implied 
warranty that the property is of that description. If it proves 
otherwise, the warranty is broken, and the vendor is liable for 
the vendee's damages. The vendee may rescind the contract 
and refuse the property. 

Illustration. — Certain cattle were sold for future delivery under 
the description of "fat cattle." Held, that the cattle must be of the 
description at the time of delivery or the purchase could be rescinded. 
Foss v. Sabin, 84 111., 564. 



90 PRACTICAL LAW. 

193. Warranty of Fitness. — When a manufacturer or a 
dealer contracts to supply an article to be applied to a par- 
ticular use, and the buyer trusts and relies upon the sellers 
judgment, and not upon his own, there is an implied warranty 
that the article shall be reasonably fit for the use specified. 
But when an article of a well defined kind is ordered from a 
manufacturer, even though the order sets forth the purpose 
for which the article is to be used, there is no implied warranty 
that the article will be adapted to that purpose. The only 
implied warranty is that the article shall conform to the 
general description of articles of its kind, and that it shall be 
of good materials and workmanship. 

Illustration. — A person ordered an auger of a certain size to be 
used in boring wells. An auger of the proper size and description was 
sent, but, upon trial, it was found not adapted to the purpose for which 
its purchaser intended it. Held, that the purchaser had no remedy. 
Goulds v. Brophy, 42 Minn., 109. 

194. Warranty of Food. — One who sells material for use 
as food, impliedly warrants that it is fit for the purpose. If 
it proves unfit, the vendee may rescind the sale upon discovery 
of the fact, and may recover damages. 

If a dealer sells food which he knows, or by proper care on 
his part could have known, to be dangerous to the life or 
health of those who, without fault, eat it, he will be liable 
for the consequences. 

Illustration. — A caterer supplied a supper given at a ball. Cer- 
tain of the food was poisonous and guests were injured thereby. The 
caterer was held liable. 

Bishop v. Weber, 139 Mass., 410. 

A vendor of hay, knowing that some white lead paint had become 
mixed with the same, was held liable for the value of a cow that died 
by reason of having eaten the poisoned hay. 
French v. Vining, 102 Mass., 132. 

195. Warranty in Sales by Sample. — When goods are 
sold by sample there is an implied warranty that the goods 
delivered shall equal the sample in quality. But there is no 



SALES OF PERSONAL PROPERTY. 9 1 

ft 

warranty that they shall be better than the sample. When 
there are defects in the sample, equally visible to both parties, 
the vendee can not complain if the goods delivered contain the 
same defect. 

Illustration. — A lithographing firm took an order for cards, con- 
ditioned upon approval of a proof. The proof was submitted to the 
purchaser, who marked it "O. K." The work was finished and de- 
livered. The purchasers refused to pay for it on the ground that two 
words were transposed, making the work different from the copy. 
The work was, however, identical with the approved sample, which 
also contained the same defect. The purchasers were forced to make 
payment for the cards. 

Gills, etc., Printing Co. v. Chase, 149 Mass., 459. 

196. Fraud in Sales. — When one purchases goods with 
the pre-existing intent not to pay for them, the seller may 
disaffirm the contract and recover back his goods, unless the 
rights of an innocent person have intervened. 

The mere fact that the vendee knew himself to be insolvent 
at the time of purchase is not fraud, provided he bought with 
intent to pay. 

Sales made in fraud of creditors, where both vendor and 
vendee participate in the fraud are void. 

Sales made in fraud of creditors, where the vendee is an 
innocent purchaser for value, are valid. 

Sales, like other contracts may be vitiated by fraud. A 
fraud sufficient to avoid any other contract will avoid a sale. 
(See Sec. 104.) 



CHAPTER XVII 



SALES OF REAL ESTATE. 

197. Sales of Real Estate.— Contracts for the sale of 
real estate, to be valid, must be in writing. Part payment of 
purchase price will not bind a bargain for the sale of land. 

Contracts for the sale of land are of two classes: (a) Land 
Options and (b) Land Contracts. 

198. Land Options. — A Land Option is a written instru- 
ment, made for a valuable consideration, granting a person 
the right to purchase if he chooses (but not binding him to 
purchase) certain real estate on certain terms, and within a 
time specified. When a person has reason to think that he 
may, at some unremote future time, desire to buy certain real 
estate, the usual practise is for him to obtain, if possible, an 
option upon it, running a sufficient length of time to enable 
him to fully decide whether he will or will not make the 
purchase. Land options are frequently used when it is 
desired to buy real estate without disclosing the name of the 
purchaser until after the price has been fixed. Owners often 
ask excessive prices if it is known that the prospective pur- 
chaser is a wealthy person, firm or corporation. To forestall 
this tendency, it is a common practise to commission a third 
person to obtain an assignable option in his own name, fixing 
the price at a fair amount. This option is then assigned 
to the real purchaser, who can then tender the price stated in 
the option and require conveyance of the property to himself. 

The option contract must be upon a sufficient consideration. 
A gratuitious option is void. The option may provide that 
the sum paid for it shall apply upon purchase price in the 



SALES OF REAL ESTATE. 93 

event of purchase. Payment of one dollar will be a sufficient 
consideration to make the contract binding upon the prospect- 
ive vendor, no matter how great the value of the land involved. 
Land owners usually charge for options a fair compensation 
for the advantage conferred. Under a land option, the vendor 
is bound to sell if the vendee elects to buy; but the vendee is 
under no obligation to make the purchase. 

199. Form of Option. — When an option is valuable, it 
should be executed with the same formalities required for the 
execution of deeds. It may then be recorded in the office 
where the public land records are kept in the county where the 
optioned land is situate. By recording the option, the owner 
of the land is prevented from selling the property while the 
option is in force, except subject to the option. 

The following is a form of option widely used : — 

THIS CONTRACT, Made this second day of January, A. D. 
1906, by and between John Doe and Mary Doe, his wife, both of 
Chicago, Cook County, Illinois, as parties of the first part, and 
Richard Roe, of Detroit, Wayne County, Michigan, as party of the 
second part, 

WITNESSETH, that the said parties of the first part, in con- 
sideration of the sum of one dollar to them in hand paid by said 
party of the second part, do hereby agree that they shall and will at 
any time within six months from the date hereof, at the written 
request of the said party of the second part, execute and deliver to 
him, or to his heirs, executors, administrators or assigns, a good and 
sufficient Warranty Deed of the following described land, situated in 
the city of Cincinnati, county of Hamilton, state of Ohio, to-wit : 

Lot numbered one (1) in Cosgrove's Addition to said City of Cin- 
cinnati, as the same appears by the recorded plat thereof, for the sum 
of One Thousand ($1,000) Dollars, payable in cash at the time of 
delivery of said deed. 

And the said parties of the first part do hereby further agree that 
they will not within six months from the date hereof, sell, convey, 
mortgage, or otherwise incumber the said land, or any part thereof, 
or do, or permit to be done, any act to impair or incumber the title to 
said land. 

It is further agreed that, if said party of the second part shall 
not have exercised this option within six months from and after this 
date, he shall have no further rights hereunder, and that the option 



94 PRACTICAL LAW. 

herein granted shall, at the expiration of said period of six months, 
absolutely cease and terminate. 

IN WITNESS WHEREOF, the said parties hereto have hereunto 
set their hands and seals the day and year first above written. 

John Doe [seal] 

Mary Doe [seal] 

In presence of 
Thomas Mason 
Howard Rice. 

(If the instrument is to be recorded, it should be acknowledged 
before a Notary Public, or other proper officer.) 

The option should be signed by all persons who are ex- 
pected to sign the deed to be given in case of purchase. Thus, 
if the wife of the vendor is a necessary party to the anticipated 
deed, she should sign the option contract. 

When the vendor named in a valid option refuses to make 
and deliver the promised deed upon tender of full payment 
within the appointed time, the courts will enforce perform- 
ance of the contract, or will award the vendee damages for 
its breach, as the vendee elects. 

200. Land Contracts. — A Land Contract is a written 
agreement in which the vendor undertakes to sell and convey, 
and the vendee undertakes to buy, make payment for, and 
receive conveyance of, certain land on specified terms. These 
terms may embrace any lawful arrangement which the parties 
choose to make. The mutual promises contained in such a 
contract are a sufficient consideration to sustain it without 
payment of money by the vendee. 

201. Form of Land Contract. — The following is a simple 
form of Land Contract: — 

THIS CONTRACT, Made this second day of January, 1906, 
between John Doe and Mary Doe, his wife, of Chicago, Cook County, 
Illinois, as parties of the first part, and Richard Roe, of Detroit, Wayne 
County, Michigan, as party of the second part, 

WITNESSETH, That the said parties of the first part, in consid- 
eration of the sum of one thousand dollars ($1,000), to be to them 
duly paid as hereinafter specified, hereby agree to sell and convey to 



SALES OF REAL ESTATE. 95 

the said party of the second part, all the following described land, 
situated in the city of Detroit, County of Wayne, State of Michigan, 
to-wit : 

Lots numbered nine (9) and ten (10) in Cass Addition to said 
city of Detroit, as the same appears by the recorded plat thereof, for 
the said sum of one thousand dollars ($1,000), which the said party 
of the second part hereby agrees to pay to the said parties of the first 
part, as follows : — 

Five hundred dollars ($500) together with interest on all sums 
unpaid computed at the rate of six (6) per centum per annum, shall be 
paid on or before one year after the date hereof; Five hundred dollars 
($500) together with interest on all sums then payable shall be paid 
on or before two years after the date hereof. 

Said party of the second part also agrees to pay promptly as soon 
as due, all taxes and assessments, extraordinary as well as ordinary, 
that shall be taxed or assessed on said land, during the term of this 
contract, or any extensions hereof. 

It is agreed by the parties hereto, that the said parties of the first 
part, on receiving payment in full of the said principal and interest at 
the times and in the manner above mentioned, and of all other sums 
chargeable in their favor hereon, shall and will, at their own proper 
cost and expense, execute and deliver to the said party of the second 
part, a good and sufficient Warranty Deed of said above described land, 
free and clear of and from all liens and incumbrances, except such as 
may have accrued on said land subsequent to the date hereof, by or 
through the acts or negligence of said party of the second part. 

It is also agreed by the parties hereto, that said party of the second 
part shall have possession of said land, under this Contract, on the 
date hereof. 

It is also agreed by the parties hereto, that if the said party of the 
second part shall fail to perform this Contract, or any part of the 
same, the said parties of the first part shall, immediately after such 
failure, have the right to declare this Contract void, and to retain 
whatever may have been paid hereon, and all improvements that may 
have been made on said land, as stipulated damages for non-perform- 
ance of this Contract, and may consider and treat said party of the 
second part as a tenant holding over without permission, and may take 
immediate possession of said land, and remove said party of the second 
part therefrom, and said party of the second part hereby waives any 
and all notice to quit in the event of his default in any manner hereupon. 

And it is agreed, that the stipulations herein contained are to apply 
to and bind the heirs, executors, administrators and assigns of the 
respective parties hereto. 



g6 PRACTICAL LAW. 

IN WITNESS WHEREOF, The parties hereto have hereunto 
set their hands and seals, the day and year first above written. (Ex- 
ecuted in duplicate.) 

John Doe [seal] 

Mary Doe [seal] 

Richard Roe [seal] 
In Presence of 
Nelson Whitcomb 
Harrison Tyler. 

202. Parties to Land Contract. — As in the case of an 
option, all persons necessary to make such final conveyance as 
is desired should be joined in the contract as parties of the 
first part. The parties of the second part should include all 
from whom payment is expected. 

203. Recording. — It is always the safer course for the 
vendee to have his contract acknowledged and recorded. 
When the contract is recorded it is notice to all the world of 
the rights of the parties thereto. Thus, A contracted with B 
to sell B certain land. B recorded the contract. A after- 
wards and while B's contract was in force, sold and conveyed 
the same land to C. C's title was subject to B's rights. But 
if C had bought innocently and without notice of B's contract, 
C would have taken the property clear of any claim on the 
part of B, and B would have had no recourse, except an 
action against A for breach of contract. 

The fact that a contract vendee is openly and visibly in 
possession of the property contracted for, is notice to all the 
world of his claim whether his contract is or is not recorded. 
Even if the contract vendee is not in possession of the property, 
and has not recorded his contract, a third person who acquires 
an interest in the contract property by mortgage, deed or 
otherwise, with actual notice of the vendee's contract, holds 
subject to the contract vendee's rights. 

204. Forfeiture. — The law does not favor forfeitures. 
Land contracts usually provide that payments shall be made on 
certain dates, and that, if payment is not so made, the contract 
and all payments made thereupon, and all improvements made 



SALES OF REAL ESTATE. 97 

on the land shall be forfeited. Yet, if payment is not made 
promptly, the contract is not ipso facto terminated. Unless he 
is grossly in default, the vendee may still tender the purchase 
price and interest, and compel conveyance, unless the vendor 
has, by some affirmative act, brought the contract to an end. 

Upon default by the vendee, the vendor may terminate the 
contract by re-entering and taking possession of the land, or 
by some act equivalent thereto. 

If the vendor desires to terminate the contract because 
payment is not made promptly, he should act without such 
delay as will indicate a contrary intention. For if the parties 
do not treat time as an essential element of the contract, the 
courts will not. 

Illustration. — Robinson purchased 30 acres of land from Trufant 
for $1,800 upon a contract, all of which was to have been paid by July 1, 
1889. Robinson made payments from time to time, but not as pro- 
vided in the contract. These payments were accepted by Trufant. 
The last payment was made and accepted September 6, 1890. On 
December 31, 1890, Trufant commenced proceedings to recover posses- 
sion of the land. Robinson then tendered the amount due (which, with 
interest, exceeded the original purchase price) and the court decreed 
that Trufant, notwithstanding Robinson's delay in payment, must 
deed over to Robinson the property called for by the contract. 
Robinson v. Trufant, 97 Mich., 410. 

205. Deeds. — When the real estate has been sold, the ven- 
dee is given title by means of a written instrument called a 
Deed. The person making the deed is a Grantor. The person 
to whom the property is transferred is a Grantee. The deed 
should identify these parties by name and place of residence, 
and should particularly and accurately describe the land con- 
veyed. If there is any doubt about the correctness of the 
description, a surveyor should be employed for the purpose of 
making a perfect description of the lands by means of fixed 
landmarks and actual measurements. 

206. A Certain Quantity "More or Less." — When a 
tract of land is described as containing a certain quantity "more 
or less," neither party can complain of a surplus or shortage, 

7 



98 PRACTICAL LAW. 

provided there has been no misrepresentation or fraud and 
provided the discrepancy is not so great as to indicate that a 
serious and essential mistake has been committeed. 

Illustration. — Trenkle deeded Jackson "2,376 acres of land, be 
the same more or less." The tract was afterwards found to contain 
only 1,936 acres. The lands had been sold at a lump price, and not at 
a certain price per acre. There had been no misrepresentation and 
no fraud. It was held that the purchaser had no remedy. 
Trenkle v. Jackson, 86 Va., 238. 

207. Examination of Title. — The grantee should in all 
cases assure himself of the sufficiency of the grantor's title, 
remembering that the grantor cannot convey more or better 
title than he owns. Various aids in the examination of titles 
are provided in different parts of the Union. Thus, abstracts 
showing a brief history of the transfers of the property are 
in quite general use. But these abstracts are entitled to con- 
fidence only so far as they are known to have been prepared by 
competent persons. In important transactions (if not in all) 
the original records should be searched. This service is usually 
best performed by lawyers, and, preferably, by those who have 
a special aptitude and experience in this class of work. 

208. Warranty Deeds. — Deeds are of two principal kinds, 
— Warranty Deeds and Quit Claim Deeds. The warranty deed 
is so called because of certain covenants which it commonly 
contains. These covenants, made by the grantor, are usually, 

(a) That the grantor owns the conveyed premises in fee 
simple ; 

(b) That he has good right to convey the same; 

(c) That the premises are free from incumbrances; 

(d) That the grantee shall not be disturbed in his quiet 
possession of the premises by reason of any existing defect 
in the title; and 

(e) That the grantor will warrant and defend the grantee 
against eviction by anyone who may prove a paramount 
title. 

The covenants for quiet enjoyment and to warrant and 
defend against paramount title are not broken except by actual 



SALES OF REAL ESTATE. 



99 



eviction of the grantee, his heirs or assigns. These two 
qovenants pass with the land and may be enforced by the heirs 
or assigns of the grantee. The other three covenants (a, b and 
c) if broken at all are broken at the moment when the deed is 
executed, and are enforcible by the grantee only. 

If the covenant against incumbrances is broken, the grantee 
is entitled to recover from the grantor the amount necessarily 
paid to discharge the incumbrances. 

If the other covenants are broken (a, b, d and e) the 
grantee is entitled to recover from the grantor the price paid 
for the lands, plus interest. The following form of warranty 
deed is in general use : — 

WARRANTY DEED. 

THIS INDENTURE, Made this first day of March, A. D. 1906, 
between John Doe and Mary Doe, his wife, both of Chicago, Cook 
County, Illinois, as parties of the first part, and Richard Roe, of De- 
troit, Wayne County, Michigan, as party of the second part. 

WITNESSETH, That the said parties of the first part, for and 
in consideration of the sum of one thousand ($1,000) dollars, to them 
in hand paid by the said party of the second part, the receipt whereof 
is hereby confessed and acknowledged, do by these presents grant, bar- 
gain, sell, remise, release, alien and confirm unto the said party of the 
second part, and his heirs and assigns, forever, all that certain piece 
or parcel of land situate and being in the city of Cincinnati, county of 
Hamilton and state of Ohio, and described as follows to-wit : — 

Lot numbered one (1) in Cosgrove's Addition to the said city of 
Cincinnati, as the same appears by the recorded plat thereof. 

Together with all and singular the hereditaments and appurte- 
nances thereunto belonging or in anywise appertaining: TO HAVE 
AND TO HOLD, the said premises, as herein described, with the 
appurtenances, unto the said party of the second part, and to his heirs 
and assigns, forever. And the said parties of the first part, for them- 
selves, their heirs, executors and administrators, do covenant, grant, 
bargain and agree to and with the said party of the second part, his 
heirs and assigns, that at the time of the ensealing and delivery of these 
presents they are well seized of the above-granted premises in fee 
simple; that they are free from all incumbrances whatever and that 
they will, and their heirs, executors and administrators shall WAR- 
RANT AND DEFEND the same against all lawful claims what- 
soever. 



IOO PRACTICAL LAW. 

IN WITNESS WHEREOF, The said parties of the first part 
have hereunto set their hands and seals the day and year first above 
written. * 

John Doe [l. s.] 
Mary Doe [l. s.] 
Signed, Sealed and Delivered 
in Presence of 

Thomas White 
Andrew Black. 

STATE OF MICHIGAN, ) 
County of Wayne, J SSm 

On this first day of March, A. D. 1906, before me, a Notary 
Public in and for said County, personally appeared John Doe and 
Mary Doe, his wife, to me known to be the same persons described in 
and who executed the within instrument, who severally acknowledged 
execution of the same as their free act and deed. 

Winter White, 

Notary Public. 
My commission expires March 6, 1906. 

209. Quit Claim Deeds. — A Quit Claim Deed is a mere 
relinquishment to the grantee of whatever title, if any, the 
grantor has. It contains no covenants. The grantee accepts 
such a deed as a venture. He may acquire something by it, 
and he may not. The grantor in a quit claim deed assumes 
no liability. 

210. Consideration. — It is not necessary that the consider- 
ation stated in the deed be the actual sum paid, although the 
true amount may be inserted if it is desired. Often the parties 
do not care to make the price public, and publicity may be 
properly and safely avoided by writing in "One Dollar and 
other valuable considerations," although the price paid may 
have been hundreds or thousands of dollars. If it ever be- 
comes necessary, the real price paid may be shown by evidence 
other than the deed itself. 

211. Execution and Delivery. — A deed, to be complete 
for all purposes, must be signed by the grantor and acknowl- 
edged before some proper officer whose certificate of acknowl- 



SALES OF REAL ESTATE. IOI 

edgment is added to the instrument. In some states two sub- 
scribing witnesses are required. Neither party to an instru- 
ment can become a witness to it, but any other person who can 
write may be, and this regardless of age or sex. As between 
the grantor and the grantee, acknowledgment and witnessing 
are not necessary. But no grantee should accept a deed omit- 
ting any formalities necessary to make it fully valid for all 
purposes. 

If the grantor is a married man, his wife should join in 
making the deed. Otherwise she will retain her dower interest 
in the lands. In states recognizing a right of curtesy in the 
husband, he should join in all deeds in which his wife is 
grantor. Otherwise his interest by curtesy will remain in 
force. In most states curtesy has been abolished. 

212. Delivery. — A deed becomes operative from the time 
it is delivered by the grantor, or his agent, to the grantee, or his 
agent. An undelivered deed is of no effect. A deed may be 
placed in escrow, for delivery upon the happening of a certain 
event (for example the payment of purchase price, or the 
death of the grantor) and it will operate from the date of 
final delivery, but not before. 

213. Return of Unrecorded Deed. — Because the act of 
delivering the deed transfers the title to the grantee, he cannot, 
by handing back an unrecorded deed, restore the title to his 
grantor. A new conveyance must be made for that purpose. 

214. Estates by Entireties. — In most states, a deed to a 
husband and his wife creates for their benefit what is known 
as "an estate by the entireties." In such an estate, each, so 
the law holds, owns the entire property. Neither has any in- 
terest which can be conveyed without joining the other spouse 
in the deed. Upon the death of either, the survivor retains 
the entire estate, free from all liability for payment of the 
debts of the deceased spouse. 

215. Execution of Deeds in Blank. — When a grantor 
signs a deed, leaving the date, consideration and name of the 



102 PRACTICAL LAW. 

grantee blank, and delivers it to an agent with instructions to 
fill up the blanks when the data therefor shall have been 
obtained, and to make delivery, such grantor will be bound by 
the deed when it has been so filled up and delivered. 

216. Recording. — As between the grantor and the grantee, 
an unrecorded deed is valid. But it is the general rule that a 
third person who, without notice of the first deed, innocently 
gives value for, receives and records a second deed from the 
same grantor (or his assigns) takes a .good title as against 
the first grantee whose deed was not recorded so soon. There- 
fore, self -protection suggests that all deeds should be promptly 
and properly recorded. 



CHAPTER XVIII. 



LANDLORD AND TENANT. 

217. Lease. — The relation of landlord and tenant is created 
by contract. This contract is called a Lease. It may be verbal 
or written. If written it may be for any period, even 999 years. 
If verbal, it will not be valid for more than one year. 

The lease confers upon the tenant the right of peaceable 
enjoyment of the leased premises, and upon the landlord the 
right to receive a compensation called "rent." 

A lease may embody any lawful agreement into which the 
parties decide to enter. The following is a simple form : — 

LEASE. 

IT IS HEREBY AGREED, Between John Doe, of Chicago, Cook 
County, Illinois, as party of the first part, and Richard Roe, of Detroit, 
Wayne County, Michigan, as party of the second part, as follows : The 
said party of the first part, in consideration of the rents and covenants 
herein specified, does hereby LET AND LEASE to the said party of 
the second part, the following described premises, situated and being 
in the city of Detroit, county of Wayne and state of Michigan, to-wit: 

Lot numbered ten in Cass Addition to said city of Detroit, as the 
same appears by the recorded plat of said Addition, for the term of 
one year from and after the second day of January, 1906, on the terms 
and conditions hereinafter mentioned, to be occupied for a residence 
and dwelling place only; 

PROVIDED, That in case any rent shall be due and unpaid, or 
if default shall be made in any of the covenants herein contained, 
then it shall be lawful for the said party of the first part, his certain 
attorney, heirs, representatives and assigns, to re-enter into, repossess 
the said premises, and the said party of the second part, and each and 
every other occupant, to remove and put out. 

And the said party of the second part, does hereby hire the said 
premises for the term of one year as above mentioned, and does cove- 

103 



104 PRACTICAL LAW. 

nant and promise to pay to the said party of the first part, his repre- 
sentatives and assigns, for rent of said premises for said term, the 
sum of twelve hundred ($1200) dollars, in twelve equal monthly 
installments of one hundred dollars each, payable monthly in advance, 
beginning with the date hereof, when the first installment shall be 
paid. 

Said party of the second part further covenants that he will not 
assign or transfer this lease, or sub-let said premises, or any part 
thereof, without the written assent of said party of the first part. 

AND ALSO, that said party of the second part will at his own 
expense, during the continuance of this lease keep the said premises and 
every part thereof in as good repair, and at the expiration of the term, 
yield and deliver up the same in like condition as when taken, reason- 
able use and wear thereof and damages by the elements excepted. 

And the said party of the first part does covenant that the said 
party of the second part, on paying the aforesaid installments and per- 
forming all the covenants aforesaid, shall and may peacefully and 
quietly have, hold and enjoy the said demised premises for the term 
aforesaid. 

The covenants, conditions and agreements, made and entered into 
by the several parties hereto, are declared binding on their respective 
heirs, representatives and assigns. Executed in duplicate. 

WITNESS our hands and seals this second day of January, 1906. 

John Doe [l. s.] 

Richard Roe [l. s.] 

In Presence of 
Henry W. Tompkins, 
George Dunham. 

(The lease should be acknowledged if it is desired to record it.) 

218. Duties of Landlord. — In all leases there is an im- 
plied covenant that the tenant shall have quiet enjoyment of 
the leased premises during his term, or so long as he shall not 
be in default. 

219. Renewal. — If a lease contains a covenant for renewal 
"on the same terms" the law will enforce the renewal. But the 
renewal lease will not be required to contain a like clause pro- 
viding that the lease may be again renewed "on the same 
terms," as this, would, in effect, give the lessee power of per- 
petual renewal. 

220. Repairs. — A landlord is under no implied obligation 
to keep the leased premises in repair. He owes the tenant no 



LANDLORD AND TENANT. 



105 



duty to repair. The fact that the premises are ruinous does not 
work any abatement of the rent. 

A landlord is not liable to a tenant for damages resulting 
from the leased premises being out of repair, unless he has 
covenanted to keep them repaired. 

Illustration. — The chimney of a house became out of repair and 
fell through the roof, injuring the furniture of the tenants. The 
landlord had made no promise to keep the property in repair. Held, 
the tenants could not recover against him for the damage. 
Payne v. Rogers, 2 H. Bl., 349. 

When a landlord leases rooms in a building, retaining con- 
trol of other parts of it himself, he will be liable for any injury 
arising to his tenants or others through his failure to keep 
the portion of the building under his control in a reasonable 
state of repair. 

If the leased building is destroyed by fire, or otherwise, the 
landlord is under no implied obligation to rebuild. 

In the absence of covenants to repair, the tenant is not 
bound to make repairs. If he makes them, he cannot (in the 
absence of agreement) compel his landlord to pay for them 
or to set them off against the rent. 

221. Rent. — The tenant's chief duty is to pay the rent 
reserved in the lease. For non-payment he is subject to evic- 
tion. Usually, proceedings for eviction must be preceded by 
a notice to quit, given by the lessor to the lessee. This notice 
is the foundation of the proceeding for eviction. Like any 
other right, notice to quit may be waived. 

222. Notice to Quit. — Notice to quit need not be in any 
special form. It should describe the premises with reasonable 
certainty. It may be substantially as follows : — 

NOTICE TO QUIT. 

To Richard Roe : 

Please take notice that you are hereby required to quit, surrender 
and deliver up possession to me of the premises hereinafter described, 
which you now hold of me as my tenant, on or before the first day of 



106 PRACTICAL LAW. 

July, A. D. 1906, as I intend to terminate your tenancy, and to 
repossess myself of such premises on the date above mentioned, by 
reason of your default in payment of the rent by you covenanted 
to be paid. 

Said premises are described as Lot numbered ten (10) in Cass 
Addition to the city of Detroit, Wayne County, Michigan, as said lot 
appears by the recorded plat of said addition. 

John Doe. 

Dated at Detroit, Wayne County, Michigan, the 20th day of June, 
A. D. 1906. 

223. Reentry of Landlord. — When a lease has expired 
by limitation, or through breach of a covenant, as for example, 
non-payment of rent, the lessor has a right to enter upon the 
land (after notice to quit, where such notice is necessary) and 
to expel the tenant therefrom, if he can do so without commit- 
ting a breach of the peace. He must not use force or violence 
against the person of the tenant, but he may in a peaceable 
manner remove the tenant's goods from the premises. 

But if eviction cannot be accomplished peaceably and with- 
out force or violence, the landlord must resort to the courts to 
procure restitution of his property. 

224. Destruction by Fire. — If a leased building is made 
wholly or partly untenantable by fire, it is a general rule that 
the tenant is liable for the rent until the end of his term, unless 
the lease (as it always should) provides otherwise. 

If the lessee has covenanted to keep the leased buildings in 
"as good a state of repair as they are in when taken," without 
qualifying the undertaking by excepting damage by the ele- 
ments, he is required to repair the buildings if damaged, or to 
rebuild them if destroyed, unless the damage or destruction 
is caused by act of God or the public enemy. 

225. Assignment of Lease. — A lessee may assign the 
whole or any part of his lease, unless he has covenanted against 
so doing. But to sub-let a part of the leased property does not 
violate a covenant not to assign the lease. It would, however 



LANDLORD AND TENANT. IO7 

be in violation of a covenant not to assign the lease or any part 
of it. 

The assignee of a lease is liable to the lessor for the rent 
and for performance of the covenants of the lease, although 
the assignment contains no agreement to pay rent and no cove- 
nants. 



Banking* 



COMMERCIAL PAPER, 

LEGAL HISTORY OF A BILL OF EXCHANGE 
LEGAL HISTORY OF A NOTE, 
NEGOTIABLE INSTRUMENTS. 



109 



CHAPTER XIX. 



BANKING. 



226. Banks. — As to organization, banks are National, State 
or Private. National Banks are corporations organized under 
the laws of the United States. State Banks are corporations 
organized under the laws of some particular state. Private 
Banks are unincorporated concerns, usually unrestricted by 
state or federal supervision, and generally conducted under 
sole ownership or partnership organization. 

Savings banks exist under the laws of most of the states. 
These banks are generally empowered to loan a portion of their 
deposits upon real estate securities. They usually invite small 
as well as large deposits, and pay a low rate of interest upon 
balances left for deposit during a specified time. They issue 
pass books evidencing the deposits made and containing the 
terms on which deposits are received. These terms, in general, 
amount to a contract between the depositor and the bank. They 
should therefore be examined carefully by the depositor, so 
that he may know his rights and the bank's duties. 

227. General Deposits. — When one makes a general de- 
posit upon open account in a bank, the 'bank merely becomes 
the depositor's debtor for the amount deposited. The money 
thus put into the bank becomes the bank's property. If lost or 
stolen, the bank must bear the loss. No matter what becomes 
of the money deposited, the bank must return to the depositor 
a like amount on demand. This demand is made by check. 
A check is a written order directed to the bank requiring it 
to pay a certain sum of money to a certain person therein 

110 



BANKING. Ill 

named, or to his order, or to bearer, upon presentation. Pre- 
sentation of a check for payment is a demand of payment. If 
a bank, having sufficient of the depositor's funds on deposit 
to meet the check, refuses payment, the bank will be liable 
to the depositor for all damages arising from the non-payment. 

Illustration. — Svendsen drew two checks, one for $2.15 and one 
for $54.60. He had on deposit $235.22. By error the bank had charged 
against him a note of $300 owed by him to the bank, but not then due. 
Mistakenly believing Svendsen's account overdrawn, the bank refused 
payment of the two checks. The court held that Svendsen was 
entitled to recover from the bank substantial damages for the injury 
occasioned to his credit by the non-payment of these checks. 
Svendsen v. State Bank, 64 Minn., 40. 

228. Presentation of Check. — A Check should be 
promptly presented for payment. If the person who receives 
the check and the bank upon which it is drawn are in the same 
place, the check must (in the absence of some sufficient excuse) 
be presented on the same day or, at latest, before the close of 
business hours on the day after it is received. If the person 
who receives the check and the bank on which it is drawn are 
in different places, the check must be forwarded for presenta- 
tion on the day it is received, or, at latest, on the day after it 
is received, and the agent to whom it is sent must present it, at 
latest, before the close of business hours on the day after he 
receives it. This rule may be varied only by showing strong 
reasons for non-compliance. 

Illustrations. — (I) Tamlin sold Simpson live stock to the amount 
of $929.46, for which Simpson gave two checks drawn Dec. 13, 1893, on 
the Cass County Bank of Atlantic, la. This bank failed Dec. 27, 1893. 
Hamlin had failed to present the checks for payment. The court held 
that Hamlin must^bear the loss occasioned 'by the failure. Had Hamlin 
presented the checks promptly, as prescribed by the rules above stated, 
the loss would have fallen upon Simpson. 
Hamlin v. Simpson, 105 la., 125. 

(II) Rothwiler, while at a lumber camp about twenty miles north- 
east of Cadillac, received in payment of a bill a check of $66 drawn on 
a Cadillac bank. He immediately proceeded to Cadillac, but reached 
the bank after it had closed for the day. The next day being Sunday, 



112 PRACTICAL LAW. 

he went to his home at Reed City, about twenty-seven miles south of 
Cadillac. On Monday morning he deposited the check with a Reed 
City bank for collection. The check was immediately forwarded, but 
reached Cadillac after the bank on which it was drawn, had failed, 
the failure having occurred on Monday. It was held that Rothwiler 
had used reasonable diligence and that the depositor who had drawn 
the check must bear the loss. 

Freiberg v. Cody, 55 Mich., 108. 

229. Stoppage of Payment. — Payment of a check may be 
countermanded by the drawer at any time before the bank has 
made acceptance or payment. To stop payment, the drawer 
merely gives the bank a description of the check together with 
instructions not to pay such check upon presentment. 

230. Check Not an Assignment. — A Check does not 
operate as an assignment to the payee of any part of the 
drawer's funds on deposit. The bank is not liable to the holder 
of the check until it accepts or certifies the instrument. But 
when the bank has accepted or certified a check, it is bound to 
make payment of the same on demand. 

Illustration. — A cattle company sent a bank the following tele- 
gram: "Will you pay James Tate's check on you for $22,000? Answer." 
To which telegram the bank replied: "James Tate is good. Send on 
your paper." Although James Tate did not have $22,000 on deposit, 
the bank was held liable for payment of the check. The bank's tele- 
gram was held to be an acceptance. 

Garrettson v. N. Atchison Bank, 39 Fed. Rep., 163. 

231. Certified Checks. — A check is certified by the cashier 
of the bank on which it .is drawn writing the word "certified," 
or some equivalent expression, across the face of the instrument 
and signing his name thereto as cashier. The amount of the 
check is immediately charged against the drawer's account and 
the bank assumes payment. If a check already certified is 
received in payment of debt, and the certifying bank is insolv- 
ent, or fails before the check can, in the exercise of proper 
diligence, be presented for payment, the drawer will remain 
liable for the debt which the check was given to pay. 



BANKING. 113 

But when one who has received a check in payment of a 
debt, thereafter causes the check to be certified, the drawer and 
all indorsers are thereby discharged from liability. The reason 
for this is that, at the time the check was certified, demand for 
payment might have been made. The holder of the check, 
having elected not to demand payment at that time, and having 
chosen instead to rely upon the bank's credit, must abide by 
the consequences of his choice. 

232. Forged Checks. — Forgery is punishable as a crime; 
yet it is a danger which constantly menaces banks. Since a 
bank must not pay out deposits except on valid orders from its 
depositors, it follows that, if a bank pays out money on a forged 
check, the bank can not charge the amount so paid against the 
account of its depositor, unless the depositor's negligence has 
in some way contributed to induce the payment. 

A bank is bound absolutely to know the signature of its 
depositors. If a bank pays a check bearing the forged signa- 
ture of a depositor, it can not, in general, recover the amount 
from a bona tide holder to whom it has made payment. 

But if a bank pays a "raised" check, (i. e. a check in which 
the original amount has been' increased by forgery) it may 
recover the amount of the fraudulent increase, even from a 
bona fide holder to whom the bank has made payment. This 
relief is granted the banks because, while a bank must know 
its depositor's signature, it can not be presumed to know what 
he has written in the check. 

233. Returned Checks. — It is generally held to be the 

depositor's duty to examine the paid checks returned to him 
by the bank, and if he negligently fails to detect forgeries he 
must generally bear the loss. 

Illustration. — Allen, a depositor, sued to recover monej- which 
had been paid out by the First National Bank of Birmingham, Alabama, 
on eight checks charged to his account. On all of these checks Allen's 
signature had been forged. The forgeries covered a period of about 
six months. At the end of each month, the bank had returned Allen 
his paid checks, together with his posted up pass book. He had negli- 

8 



114 PRACTICAL LAW. 

gently instrusted the examination of his pass book to his clerk, who 
was the forger. Under this state of fact, and because of Allen's negli- 
gence in not making personal examination of the checks, it was held 
that he, and not the bank, must suffer the loss. 

First National Bank of Birmingham v. Allen, 100 Ala., 476. 

234. Special Deposits. — When money is deposited with 
and accepted by a bank to be paid out for a special purpose, 
the money does not become the property of the bank and the 
relation of debtor and creditor does not exist between the bank 
and the maker of the special deposit. 

Illustration. — Kimmel deposited $265 with the Douglas County 
Bank at Armour, South Dakota, to be paid over to Ward upon presen- 
tation of a warranty deed and an abstract of title conveying certain 
lands to Kimmel. The bank accepted the deposit with the understanding 
that it was to be held for the purpose stated. Before Ward presented 
the deed, the bank failed. It was held that Kimmel was not a general 
creditor of the bank, like ordinary depositors, but that he was entitled 
to have his special deposit repaid to him in full before the general 
depositors received anything. 

Kimmel v. Dickson, 5 S. D., 221. 

235. Set Off. — The relation between a bank and its deposi- 
tor being that of debtor and creditor, the bank is bound to pay 
all checks of the depositor as long as it has sufficient funds in 
its possession for that purpose. But when a depositor owes 
a bank a matured debt, it is equally the right of the bank to set 
off such debt against funds credited to the debtor on its books. 
In other words, the bank may appropriate a deposit to the pay- 
ment of a matured debt due from the depositor to the bank. 

236. Instruments Payable at Bank Treated as Checks. 

— -A bill or note made payable at the bank where the obligor 
keeps his account is equivalent to a check drawn by him on that 
account. The bank may make payment and charge the paid 
instrument against the account of the obligor. 

237. Overdrafts.-— When a bank has paid its depositor's 
checks to an amount exceeding the deposit, the depositor is 
said to have made an overdraft. The overdraft forms a debt 



BANKING. 115 

due immediately from the depositor to the bank. The rules of 
most banks very properly prohibit overdrafts. 

238. President. — The president of a bank has no authority 
to act as its agent, except as such power is conferred upon him 
expressly or by necessary implication. His authority is to be 
ascertained from the statutes under which the bank is con- 
ducted, the charter, the by-laws and the adopted motions or 
resolutions of the board of directors. 

239. Vice-President. — During the absence or disqualifi- 
cation of the President, the vice-president may exercise all 
powers ordinarily exercised by the president. 

240. Cashier. — While the cashier may be given express 
authority to carry out any transaction or class of transactions 
delegated to him by the board of directors, his implied authority 
is limited. In the absence of express authority, he has power 
to bind the bank only when he acts within the general scope 
of his ordinary duties. He can not go beyond these without 
special authority from the board of directors. As to third 
persons he has, by reason of his position, the right to receive 
payment of debts and to cancel obligations and surrender up 
securities, but he has no implied power to receive payment in 
anything other than money, nor can he make binding contracts 
outside the scope of his ordinary duties. 

Illustration. — The cashier of a Columbus bank, without special 
authority, gave to Miner, one of its directors, a letter to the Secretary 
of the Treasury of the United States, to the effect that Miner had 
authority to contract in behalf of the bank for the transportation of 
money for the government from New York to New Orleans. Relying 
upon this letter, the Secretary of the Treasury entered into such a 
contract with Miner and delivered Miner $100,000 of the government 
money to be so transported. Miner received the money but never 
delivered it. Still relying upon its supposed contract with the Columbus 
bank, the United States brought suit against the bank to recover the 
amount instrusted to Miner. The court held that, as the cashier had 
never been given authority by the bank to make contracts for the 
transportation of money, the contract made by the cashier with the 



Il6 PRACTICAL LAW. 

government through Miner did not bind the bank, and that the bank 
was under no liability on account of the transaction. 

United States v. City Bank of Columbus, 62 U. S., 21 Howard, 
356. 

241. Powers of Directors. — The directors of a bank have 
full power to manage and control its affairs within the limit 
of its charter purposes, but not beyond. They may delegate 
special duties to the president, cashier and other officers-, but 
they can not confer upon another a power which they do not 
themselves possess. For example, they can not authorize the 
president or cashier to speculate in stocks, real estate or other 
property. In general,.a bank can not own stocks in other cor- 
porations, except when it acquires them for the purpose of 
protecting itself against imminent loss. A bank may buy real 
estate necessary for the conduct of its business, but it cannot 
purchase real estate for speculative purposes, nor can it buy 
land generally, except to protect itself against loss. 

242. Liabilities of Directors. — Except when otherwise 
provided by statute, bank directors who receive no pay for 
their services are not responsible to the bank for anything short 
of gross negligence, fraud or reckless inattention to duties, 
whereby frauds are permitted. Where they have discretionary 
powers, they will not be liable for a mistaken use of the discre- 
tion, even though loss ensues. 

Illustration. — The Penn bank of Pittsburg failed because of the 
withdrawal of its funds by its president for use in his private specula- 
tions. The directors had been in the habit of holding weekly meetings 
for the purpose of passing upon discounts, and at these meetings the 
president and cashier presented reports concerning the condition of 
the bank. The directors did not attempt to go to the source of these 
reports, but accepted them as true. After the failure, an attempt was 
made to hold the directors liable to depositors for the amount lost. It 
was claimed that the directors should have gone to the books of the 
bank, and that they should have examined the bank's securities in 
person, and that they should not have relied upon the unverified state- 
ments of the president and cashier. But the court held that the 
directors, having acted in good faith and without gross negligence or 
reckless inattention to duties, were not liable to the depositors for the 
loss. 

Swentzel v. Penn Bank, 147 Pa., 140. 



BANKING. 117 

243. Collections. By the weight of authority, a bank that 
receives for collection the note, draft or other claim of a cus- 
tomer upon a party residing at some distant point, is liable 
for the loss of the proceeds of the collection through the failure 
or default of a correspondent to whom the bank has sent the 
draft for collection. Thus, if A delivered a note to B, a bank, 
for collection from C at some distant place, and if B sent the 
note to D, its correspondent bank, and if D collected the note 
and kept the proceeds, B would, under the principle just 
stated, be bound to bear the loss and to pay A the full amount 
collected by D. 

The courts of many of the states deny this doctrine and 
hold that, when a note, draft or other claim is left with a 
bank for collection in the usual course of business, and the 
bank transmits the claim, accompanied by proper instructions, 
to a correspondent of supposed responsibility, selected with 
reasonable care, the forwarding bank will not be liable to the 
owner of the claim if the correspondent makes the collection 
and misappropriates the proceeds. 

Illustration. — Daly deposited certain drafts with the Butchers & 
Drovers Bank of Kansas City, Mo., to be transmitted to Vicksburg for 
collection. The latter sent the drafts to the National Bank of Vicks- 
burg, which it believed trustworthy, with instructions to collect and 
remit. The Vicksburg bank collected the money and kept it, and 
became insolvent. The court held that the Butchers & Drovers Bank 
was not liable to Daly for the loss. 

Daly v. Butchers & Drovers Bank, 56 Mo., 94. 

On this subject, the student is advised to ascertain the law 
as laid down by the courts of his own state. 



CHAPTER XX. 



COMMERCIAL PAPER. 

244. Classes of Paper. — Commercial paper includes all 
transferable written instruments used in carrying on trade and 
commerce. Bills of lading, warehouse receipts, stock certi- 
ficates, checks, drafts, certificates of deposit, promissory notes, 
money bonds and coupons are the kinds of commercial paper 
most commonly in use. Unless restricted by their own terms, 
all of these instruments are readily transferable and the pur- 
chaser takes at least as good a title to the instrument as was 
possessed by his tranferor. Under some circumstances, the 
purchaser of certain of these instruments may actually take a 
better title and broader rights than his transferor possessed. 
The kinds of paper to which this advantage applies are called 
Negotiable Instruments. , 

245. Negotiable Instruments.— While money-bonds, stock 
certificates and other securities possess characteristics 
of negotiability, bills of exchange and promissory notes are the 
only strictly negotiable instruments. Bills of exchange are 
checks and drafts. Promissory notes include ordinary notes 
of hand and also certificates of deposit issued by banks. 

246. Advantages of Negotiability. — In general any in- 
strument, whether negotiable or not, may be bought and sold. 
Thus, an account may be transferred by assignment and the 
transferee will be substituted to all rights of the transferor. 
But the transfer of a non-negotiable instrument is subject to 
this infirmity — the tranferee merely "stands in the shoes" of the 
transferor. Defenses good against the seller of a non-nego- 
tiable instrument may be urged with equal force against the 

118 



COMMERCIAL PAPER. 1 19 

purchaser of it. The fact that the purchaser of non-negotiable 
paper has given value for it and that he bought it innocently 
and before it was due, will not generally protect him against 
defects in his transferor's title. If the transferor's title was 
imperfect, the transferee's title will be likewise imperfect. The 
purchaser of a non-negotiable instrument, like the purchaser 
of any other chattel, buys at his own peril. 

Not so with the purchaser of a negotiable instrument who 
becomes a holder in due course. As such holder, he takes per- 
fect title to the paper, although his transferor's title may have 
been defective. Unless the instrument is a forgery, or the 
equivalent of a forgery, or is for some other reason void, the 
holder in due course can collect it, although it may have been 
stolen from the maker and the transferor may have been the 
thief. 

247. Holder in Due Course. — One can not become a 
holder in due course unless the paper is complete and regular 
upon its face, and unless he purchases in good faith, without 
notice of defenses before maturity and for value. 

If the instrument is obviously incomplete or irregular, one 
can not become a holder of it in due course. The defect 
apparent upon the face of the instrument itself is notice to him 
that something is wrong, and if he buys he takes subject to 
such notice. He is put upon inquiry by the defect. It becomes 
his duty to investigate. If he neglects this duty he must suffer 
the consequences. 

One can not become a holder in due course of paper which 
he knows has been dishonored, or against which he knows a 
defense is claimed. So one can not become a holder in due 
course of over-due paper, because the fact that payment was 
not made at maturity is an indication that there is something 
wrong. 

Nor can a person become a holder in due course of paper 
for which he has not given adequate value. 

Illustration. — A note of $300 given by a responsible person was 
sold for $5. The court held that the purchaser was not a holder in due 
course. 

DeWitt v. Perkins, 22 Wis., 451. 



120 PRACTICAL LAW. 

Nor can one become a holder in due course of paper which 
he has not purchased in good faith. Thus, one holding a bill 
or note against which there is a defense, can not, by collusion, 
turn the obligation over to some third person and thereby 
constitute the latter a due course holder. Were this other- 
wise, anyone holding an instrument against which defenses 
are claimed, might, by agreement, place the instrument in the 
hands of a third person, who would then have power to 
collect it without regard to the rights of the obligor. 

When one having no express or implied notice of defects 
or defenses, gives adequate value for a negotiable instrument 
not over-due, he has a right to collect it, provided the instru- 
ment is itself valid. Set-offs and recoupments which might 
have been valid against the instrument in the hands of the 
transferor or other holders, can not be applied to the instru- 
ment when it is in the hands of a holder in due course. 

248. Transferee of Holder in Due Course. — One who de- 
rives his title to an instrument through a holder in due course 
thereof, and who is not himself a party to any fraud or illegal- 
ity affecting the instrument, has all the rights of his transferor 
as to parties prior to such transferee. 

249. Persons Not Holders in Due Course. — One who 

purchases a negotiable instrument under circumstances which 
prevent him becoming a holder in due course, takes the instru- 
ment subject to all the defenses that could be made against 
it if it were non-negotiable. In other words, the special legal 
advantages surrounding negotiable instruments are available 
to holders in due course only. 

250. Reason for Protecting Holders in Due Course. — 

Negotiable paper is given special advantages for the purpose of 
encouraging its use. There is not enough money in the world 
to enable the transaction of the world's business. The deficit 
is covered by the use of commercial paper. Moreover, the 
carrying of money and its transportation from place to place, 
particularly in large sums, is both inconvenient and dangerous. 



COMMERCIAL PAPER. 121 

Thus the check, the draft, and the promissory note have 
come to be as necessary as money itself to the welfare 
of trade. Under this special protection afforded by law to 
holders -in due course, these instruments pass from hand to 
hand very much like money. The greater portion of trade is 
carried on by their use. Commerce is facilitated by them. 
They are as necessary as the railroad, the telegraph and tele- 
phone to modern business. They enable credit to stand in the 
place of cash. They do away with the slow process of counting 
and the dangers of transportation. By filling the gap between 
the actual money of the country and the volume of the country's 
business, they render our financial system elastic and self- 
regulating. For these reasons, the use of negotiable paper is 
encouraged by the law. 

251. The Negotiable Instruments Law. — More than one 
half of the states in the Union have adopted practically uniform 
statutes known as the Negotiable Instruments Law. This law 
renders certain much that was formerly uncertain and in 
dispute. 

In the preparation of this treatise, the Negotiable Instru- 
ments Law has been followed, partly because it is the statute 
law in a majority of the states, and partly because it declares 
the most advanced position yet attained in the law of negotiable 
instruments. Moreover, in its main features, this legislation 
expresses the general law of negotiable instruments as applied 
in all of the states of the Union. 

The Negotiable Instruments Act has been adopted at this time 
(January 1, 1906) in Arizona, Colorado, Connecticut, District of 
Columbia, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Mary- 
land, Massachusetts, Michigan, Missouri, Montana, Nebraska, New 
Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, 
Pennsylvania, Rhode Island, Tennessee, Utah, Virginia, Washington, 
Wisconsin. 

The Negotiable Instruments Law deals with bills of ex- 
change and promissory notes only. These are the only truly 
negotiable instruments. 



122 PRACTICAL LAW. 

252. Bills of Exchange. — A Bill of Exchange is an un- 
conditional order in writing addressed by one person to another, 
signed by the person giving it, requiring the person to whom 
it is addressed to pay on demand, or at a fixed and determinable 
future time, a sum certain in money to order or to bearer. 
Bills of exchange are more familiarly known as checks and 
drafts. When we speak of bills we mean both checks and 
drafts. Bills of exchange a:e referred to as "bills" for the 
sake of brevity. 

Bills of exchange are of two classes, foreign and inland. 
When a bill (i. e. a check or draft) is both drawn and made 
payable within one and the same state, it is an inland bill. All 
others are foreign bills. Thus, a check drawn in Springfield, 
111., payable in Chicago, 111., is an inland bill. But a check 
drawn in Indianapolis, Ind., payable in Chicago, 111., is a 
foreign bill. 

253. Promissory Notes. — A negotiable promissory note 
is an unconditional promise in writing, made by one person 
to another, signed by the maker, engaging to pay on demand, 
or at a fixed or determinable future time, a certain sum of 
money to order or to bearer. For the sake of brevity we shall 
hereafter refer to promissory notes as "notes." 



CHAPTER XXI. 



THE LEGAL HISTORY OF A BILL OF EXCHANGE. 

254. Issue of Bill. — Mulford & Co., of Chicago, having 
sold goods in the amount of $500 to George Grant, Detroit. 
Mich., upon the latter's agreement to accept their draft drawn 
payable ten days after sight, drew and discounted at the Bank 
of Commerce, Chicago, the following instrument: — 

$500.00 
^ Chicago, III., January 2, 1906. 

Ten days after sight, pay to the order of Bank of Commerce 
(Chicago, 111.) Five hundred dollars. Value received and charge the 
same to account of 

Mulford & Co. 
To George Grant, 

Detroit, Mich. 

255. Parties to the Bill. — The original parties to the fore- 
going draft were therefore as follow : Mulford & Co., drawers ; 
George Grant drawee ; Bank of Commerce, payee. The Bank 
of Commerce placed its name upon the back of the draft as 
follows : — 

"Pay to the order of Home Savings Bank, Detroit, Mich. 
Bank of Commerce, Chicago, 111." 

By thus writing its name upon the draft the payee became 
an indorser. 

256. Presentation and Acceptance. — The Bank of Com- 
merce immediately sent the draft by mail to the Home Savings 

123 



124 PRACTICAL LAW. 

Bank, Detroit, Mich., for presentment to the drawee for his 
acceptance. The messenger of the Home Savings Bank 
promptly presented the draft to the drawee, who wrote across 
the face of the instrument as follows: — 

"Accepted, 
Jan. 4, 1906. 

George Grant." 

This amounted to a proper acceptance of the draft. Grant's 
relation to the accepted instrument became precisely the same 
as though it were a promissory note made by him. 

257. Maturity. — The draft now had ten days to run before 
falling due. It therefore became payable January 14th, under 
the rule that, "where an instrument is payable at a fixed period 
after date, after sight, or after the happening of a specified 
event, the time of payment is determined by excluding the 
day from which the time is to begin to run and by including the 
date of payment." 

But the 14th day of January, 1906, on which the draft 
became payable, fell upon Sunday. The instrument was there- 
fore properly presented for payment on the following Monday, 
(January 15th). 

258. Dishonor by Non-Payment. — Upon presentment for 
payment, Grant dishonored the draft. That is to say, he 
refused to pay it. As the draft was a foreign bill, it became 
necessary for its holder, the Home Savings Bank, to protest 
it for non-payment. 

259. Protest. — A draft is protested by making and attach- 
ing to it a certificate of protest made, usually, by a Notary 
Public, under his seal. The purpose of this certificate is to 
place in the hands of all future holders of the instrument proof 
that the instrument has been presented to the proper person for 
honor and that he has dishonored it. In this case the certifi- 
cate of protest would be in the following form : — 



THE LEGAL HISTORY OF A BILL OF EXCHANGE. I25 

CERTIFICATE OF PROTEST. 

STATE OF MICHIGAN, -) 
County of Wayne, j ss ' 

BE IT KNOWN, That on the 15th day of January in the year 
of our Lord one thousand nine hundred and six, at the request of 
Home Savings Bank, of Detroit, Michigan, I, Winter White, a Notary 
Public, duly commissioned and sworn, residing in the city of Detroit, 
Wayne County and State aforesaid, did present the original draft 
which is hereto attached, at the place of business of George Grant, 
the drawee and acceptor thereof, in said city of Detroit and demanded 
payment thereof which was refused. 

Whereupon, I, the said Notary, at the request aforesaid, did PRO- 
TEST, and by these presents do solemnly protest, as well against the 
drawers, makers and indorsers of the said draft as against all others 
whom it doth or may concern for exchange, re-exchange, and all costs, 
charges, damages and interest already incurred and to be incurred 
by reason of the non-payment of the said draft. 

And I, the said Notary, do hereby certify, that on the same day 
and year aforesaid, due notice that said draft had thus been presented 
for payment and that payment thereof had been thus demanded and 
refused, and that the holders of the said draft did and would look to 
the drawers, makers and endorsers thereof for payment of the same, 
were put into the Post Office at Detroit, Michigan, with the full legal 
postage paid thereon, and directed as follows, after diligent inquiry 
being made for the residence and place of business of the drawers and 
indorsers : — 
Notice for Mulford & Company, Directed Room 9, Worcester Building, 

Chicago, Illinois. 
Notice for Bank of Commerce, Directed Chicago, Illinois. 

Each of the above named places being the reputed place of busi- 
ness of the person to whom the notice was directed. 

IN WITNESS WHEREOF, I have hereunto subscribed my name 
and affixed my seal of office. 

Winter White, 
Notary Public in and for Wayne County, Michigan. 
My commission expires March 6, 1906. 

[seal] 

260. Notice of Dishonor. — In this case (as is customary) 
the Notary sent to the drawers and indorsers the necessary 
notice of dishonor. This, however, was not his official duty. 
In sending the notices he acted merely as any other agent of 
the holder might have done. It is the holder's duty to give 



126 PRACTICAL LAW. 

such notice, or to see that it is given. If the Notary does not 
attend to it, the holder, or some other agent of the holder, 
must. No special form of notice is required by law. The fol- 
lowing form is sufficient: — 

NOTICE OF NON-PAYMENT. 

Detroit, Mich., January 14, 1906. 
To Mulford & Co., 

Chicago, 111. 
Gentlemen : — 

Please take notice that a draft dated January 2, 1906, for Five 
Hundred Dollars, drawn by you upon George Grant, and by him 
accepted, payable ten days after sight, at Detroit, Mich., is now due 
and is delivered to me by the cashier of the Home Savings Bank, 
Detroit, Mich., for protest for non-payment, the same not being paid, 
and payment thereof having been demanded and refused ; and that you 
are held liable for payment thereof. 

Notice has been mailed to Bank of Commerce, Chicago, 111., 
indorser. Respectfully, 

Winter White, 

Notary Public. 

261. Discharge for Want of Notice. — When a draft has 
been dishonored, the drawers and indorsers are discharged from 
liability thereupon if they are not given prompt notice of the 
fact of the dishonor. This notice may be either verbal or in 
writing. In practise, written notice is usually given as it is 
more readily capable of proof. A drawer or indorser may 
waive notice either by words or by acts. One who has waived 
notice is not entitled to it. 

262. Settlements After Dishonor. — The draft in ques- 
tion having been properly protested and notice having been 
given to the Bank of Commerce and Mulford & Co. the Ban! 
of Commerce would be obliged to return to the Home Savings 
Bank any funds which the latter had invested in the paper, 
together with the cost of protest and notice. The Bank of 
Commerce would then proceed to collect back from Mulford & 
Co. such sums as the bank had advanced upon the paper, 
together with interest and expense. Mulford & Co. would 
then proceed to enforce their claim against Grant in the same 
manner as though they were the holders of his note. 



CHAPTER XXII. 



THE LEGAL HISTORY OF A PROMISSORY NOTE. 

263. Issue of Note. — Charles Wilson, of Chicago, pur- 
chased from Smith & Co., of New York, goods to the value 
of $1,000 for which he made payment by delivering to Smith 
& Co. the following negotiable note upon which Henry Man- 



No.. 





A 



.after dat( 



e_iwl_promi 



4.190 A- 



l_ 



fi. 



promise to pay to the order of 

%looo___ 



q^®l~~j. 



Dollars 



payable ati 
Due 




'9^- 



r 



Interest at. 



4 



.per cent. Value received. 






264. Indorsement in Blank. — Upon receiving the note, 
Smith & Co. wrote their firm name across the back cf it (i. e. 
indorsed it in blank), (a). This made the note transferable 



££v-v*x^VL/ ( 



K 



y~+ nt ^y* — v " t "^-- 



r a] 







128 



PRACTICAL LAW. 



by delivery. The note thus indorsed passed into circulation 
and was transferred without further indorsement through the 
hands of several parties, until it finally came into the possession 
of Amos Markham. 

265. Indorsement in Full. — Markham, being a careful 
man, and knowing that the note indorsed in blank (hence pay- 
able to bearer) was subject to loss by theft, wrote above the 
blank indorsement of Smith & Co. the words "Pay to the order 
of Amos Markham," thus converting the blank indorsement 
into a special indorsement (sometimes called an "indorsement 
in full"), (b). This he, or any other holder, had a perfect 
right to do. The act in no way increased the liability of Smith 
& Co., hence they could not object. By making the indorsement 
special, Markham made the note non-transferable as commercial 
paper, until such time as he himself indorsed it. This made 
the paper unavailable to any person who might come into 
possession of it wrongfully. 















THE LEGAL HISTORY OF A PROMISSORY NOTE. 120, 

266. Waiver of Rights by Indorser. — Later, Markham 
sold the paper to Henry Wise, who insisted upon Markham's 
indorsement being so made that Markham would not be able 
to escape liability in case of any failure to present the paper for 
payment at maturity, or in case of failure to give Markham 
notice of non-payment. In other words, Wise declined to pur- 
chase the note unless Markham would indorse it in full and 
with demand, protest and notice waived, (c). 

267. Indorsement Without Recourse. — Wise then sold 
the note to Ralph Lehr. Desiring to escape all liability, Wise 
indorsed in full, but qualifiedly (i. e. without recourse), (d). 
This form of indorsement left Wise free from any obligation 
as an indorser upon the paper. Lehr then transferred the 
note to Theron Wilson, indorsing in full, and guaranteeing 
payment, (e). 

268. Guaranty of Payment. — Under this guarantee Lehr 
would be liable to subsequent holders for payment of the note, 
even though demand and notice were omitted, provided Lehr 
suffered no damage by the omission, and provided no exten- 
sion or other change of the terms of the note were made 
without his consent. (See Guarantors.) 

269. Restrictive Indorsement. — The note being now 
almost due, Wilson deposited it with the Bank of America, 
New York, for collection, indorsing it restrictively. (f). 
The Bank of America presented the note for payment on the 
day of maturity, at the office of the Seventh National Bank, 
New York, where it was made payable. 

270. Dishonor and Notice of Dishonor. — Payment was 
refused. Notice of dishonor was therefore necessary to all 
parties entitled to it. This notice may be given verbally or in 
writing. In practise, it is usually given in substantially the 
same form as notice of dishonor of a bill. (See Sec. 260.) 
Protest of the note was proper and customary, but not neces- 
sary. (Foreign bills of exchange are the only instruments 



130 



PRACTICAL LAW. 







^---^'^^^^^ 








a 




fat 










which absolutely require protest when dishonored). Since 
protest of the note was not necessary we will assume that it 
was not made, reserving the subject of protest for later con- 
sideration. 

The parties to the note under consideration, were now as 
follows : — 

Charles Wilson, maker, not entitled to notice ; 

Henry Manning, maker (as surety) not entitled to notice; 

Smith & Co., payees and indorsers, entitled to notice as 
indorsers ; 

Amos Markham, indorser, notice waived, therefore not re- 
quired ; 



THE LEGAL HISTORY OF A PROMISSORY NOTE. 131 

Henry 'Wise, indorser without recourse, notice unnecessary; 
Ralph Lehr, indorser and guarantor, entitled to notice as 
indorser, but not as guarantor; 

Theron Wilson, entitled to notice. 

271. Collection. — We will now suppose that Theron 
Wilson pays back to the Bank of America the amount he has 
received from the bank upon the note, or that he permits the 
bank to charge the note against his account. Theron Wilson 
may now recover the amount from Lehr, and Lehr, in turn, 
will recover from Markham. Wise having indorsed without 
recourse, can not be held. 

Suppose, now, that Markham finds Smith & Co. insolvent. 
He must look to the makers. Upon investigation he finds that 
Charles Wilson is worthless, and that Manning is responsible. 
Upon examining his note he finds that it reads "Sixty days 
after date / promise to pay." This being the fact, the note, 
though made by two, may be enforced against either maker in 
a suit against him alone. The obligation is "joint and several." 
It is enforcible against both or against either of the parties 
to it, as the holder chooses. In effect it is the same as though 
it read "We or either of us promise to pay." Markham sues 
Manning. Manning defends against the note on the ground 
that the goods in payment for which it was given were inferior 
to the sample by which they were bought. At the trial Man- 
ning shows that he acquired the note in due course; that the 
instrument was complete and regular on its face ; that he bought 
it before it was due, without notice of any defense against it, 
and that he took it in good faith and paid value for it. Under 
such a state of facts, Manning's defense will be of no avail. 
In that case Markham will recover judgment against Manning 
for the amount of the note and costs of suit. Manning will 
then pay the judgment and may, in turn, sue Charles Wilson, 
the real maker. 

272. The Surety. — For although Manning is a joint maker 
as to third parties, it must be remembered that, as between 
himself and Charles Wilson, he is only a surety. He had no 



132 PRACTICAL LAW. 

interest in the original proceeds of the note, therefore he can 
recover judgment against Wilson for the whole amount of 
the note, and accumulated costs. If this judgment can be 
collected, Manning will be fully reimbursed. If it can not be 
collected, he must suffer the common loss incident to suretyship. 
As was said centuries ago, so to-day, "He that is surety, 
shall smart for it." 



CHAPTER XXIII 



NEGOTIABLE INSTRUMENTS. 

273. When is an Instrument Negotiable. — To be fully 
and perfectly negotiable, an instrument must conform to the 
following requirements : — 

(a) It must be in writing and signed by the maker or 
drawer, or by his lawfully authorized agent. 

(b) It must contain an unconditional promise or order to 
pay a certain sum of money. 

(c) It must be payable c n demand or at a fixed or determin- 
able future time. 

(d) It must be payable to orde o- to bearer. 

(e) If the instrument is a bill of exchange, the person on 
whom it is drawn must be specified. 

(f) In some states (but not i- those having the Negotiable 
Instruments Law) an obligation, to be strictly negotiable, must 
be payable at some bank named in the instrument. 

Want of negotiability does not imply any lack of legality or 
want of transferability. A bill or note, although payable in 
property, or otherwise lacking negotiability, is transferable, 
and, if a valid contract, is enforcible. But an instrument want- 
ing negotiability does not pass like money. The purchaser of 
it does not, in general, take any better title to it than was posses- 
sion by his transferor. 

274. Signing. — All negotiable instruments must be signed 
by or in behalf of the person who becomes primarily liable for 
payment. A signature by initial, or by arbitrary marks, or by 
rubber stamp, will be sufficient if the intent of the maker or 

183 



134 "PRACTICAL LAW. 

drawer to create a valid instrument can be shown. Persons 
who cannot write may sign by mark. This is usually done in 
the following form: — 

his 
John X Doe 
mark 
the mark being made by person to be bound by the signature. 

275. Payable in Money. — To be negotiable the instrument 
must be payable in money. The courts generally hold that this 
may be either the money of this country, or of a foreign 
country. A note payable in property other than money is not 
negotiable. 

Illustration. — B made a note in which he promised to pay C 
"$1,000 in cotton." The note was held non-negotiable. 
Auerbach v. Prichett, 58 Ala., 451. 

276. Variance Between Words and Figures. — If the 

*mount of the instrument written in figures differs from the 
amount written in words, the words, and not the figures, con- 
trol. But if there is no amount written in words, the figures 
control. 

Illustration. — A note in substantially the following form was 
held to be a note for $147.70,— 
$147.70 

Indianapolis, Ind., Nov. 28, 1883. 
Four months after date I promise to pay to the order of Michigan 

Mutual Life Insurance Company Dollars, 

and five per cent, etc. Value received. 

(Signed) J. B. Witty. 
Witty v. Michigan Mutual Life Ins. Co., 123 Ind., 411. 

277. Time of Payment. — To be negotiable, the instrument 
must provide a time of maturity. The date of maturity is suf- 
ficiently certain if the instrument is payable "on demand," or 
"upon the death of B," or "on or before" a certain date. 

278. Words of Negotiability. — To be negotiable, the in- 
strument must contain words of negotiability. In general, these 



NEGOTIABLE INSTRUMENTS. 1 35 

words are "or order," or, "or bearer." An instrument payable 
to a certain person "or his assigns" is not negotiable. Checks 
payable to "cash" or to "bills payable," or to "sundries," are 
held to be payable to bearer and are negotiable. 

279. Certainty as to Amount. — To be negotiable, the in- 
strument must be a promise or order for the payment of a cer- 
tain amount. The fact that it is payable, (a) with interest, or 
(b) by stated installments, or (c) by stated installments with 
a provision, that upon default in payment of any installment, 
or interest, the whole shall become due, or (d) with exchange, 
or (e) with costs of collection, or an attorney's fee, will not, 
in most states, render the instrument non-negotiable. In states 
having the Negotiable Instruments Law, such instruments ore 
negotiable. The laws of other states are not in harmony on 
this point. 

280. Additional Provisions. — If the instrument contains a 
promise to do something in addition to making payment of 
money, its negotiability will be thereby destroyed. 

But under the Negotiable Instruments Law, and in most 
states, the negotiability of an instrument is not impaired by 
reason of the fact that the instrument contains a clause (a) 
authorizing the sale of collateral securities in case the instru- 
ment is not paid when due, or (b) authorizing confession of 
judgment against the maker in case of default, or (c) waiving 
the benefit of any law intended for the advantage or protection 
of the obligor, or (d) giving the holder an election to require 
something to be done in lieu of the payment of money. Nego- 
tiability is not impaired by reason of the fact that (a) the 
instrument is not dated, nor (b) because it fails to state the 
consideration or to state that it is given "for value received," 
nor (c) because it fails to state the place where it is drawn or 
the place where it is payable, nor (d) because it bears a seal, 
nor (e) because it specifies a particular kind of money in which 
payment is to be made. 

Nor is the negotiability of a note impaired by the fact that 
it recites the consideration for which it was given. 



I36 PRACTICAL LAW. 

Illustration. — The following note was held negotiable, and 
collectible in the hands of a holder in due course, after failure of the 
consideration, which would have been a good defense had the instru- 
ment been non-negotiable: — 
"$300. 

Chicago, March 5, 1887. 
On July 1st, 1887, we promise to pay D. Dalziel, or order, the sum 
of three hundred dollars for the privilege of a framed advertising sign, 

size x , in one end of each of the 159 street cars of the 

•North Chicago City Railway Co., for a term of three months from May 
15, 1887. 

(Signed) Siegel, Cooper & Co." 
Siegel v. Chicago Trust & Savings Bank, 131 111., 569. 

281. Antedating and Postdating. — The negotiability of 
an instrument is not impaired by antedating or postdating it, 
provided this is not done with an illegal or fraudulent purpose. 
The person to whom an instrument so dated is delivered 
acquires title from the date of delivery. 

282. Filling Up Blanks. — The Negotiable Instruments Law 
provides that: "Where the instrument is wanting in any ma- 
terial particular, the person in possession thereof has a prima 
facie authority to complete it by filling up the blanks. When a 
maker or drawer signs a bill or note in blank in order that the 
paper may be converted into a negotiable instrument, his act 
operates as a prima facie authority to the person to whom he 
delivers the paper to fill up the paper for any amount. 

In order that an instrument, delivered in incomplete form, 
may be enforced after completion against any person who be- 
comes a party to it before its completion, it must be filled up 
strictly in accordance with the authority given, and within a 
reasonable time; but if any such instrument, after completion, 
is negotiated to a purchaser in due course the instrument will be 
enforcible in his hands regardless of the fact that it may have 
been filled up for a greater amount than was intended by the 
maker. 

Thus if A signed a blank negotiable note and delivered it to 
B, with instruction to fill up the instrument for a sum not ex- 
ceeding $500; and if B afterwards wrongfully wrote his own 



NEGOTIABLE INSTRUMENTS. 137 

name in the note as payee thereof, and inserted $5,000 as the 
amount of the obligation, and then negotiated it in due course 
to C, A would be bound to pay C $5,000. 

When a maker of an instrument carelessly leaves space in 
a printed form whereby an alteration may be made without de- 
facing the instrument or exciting the suspicions of a careful 
person, the maker will be liable upon the instrument to a holder 
in due course when the opportunity for alteration has been 
exercised. (See Sec. 15.) 

283. Negotiation. — An instrument is "negotiated" when it 
is transferred from one person to another in such a manner 
as to confer ownership and possession upon the transferee. A 
note or bill payable to bearer, is transferred by merely deliver- 
ing it to the transferee. A bill or note payable to order, and 
indorsed without naming any transferee is, after such indorse- 
ment, payable to bearer. Thus, if A, being the payee named 
in a bill or note payable to his order, indorsed the instrument 
by writing his name across the back of it without naming any 
transferee, the instrument is transferable by mere delivery, until 
it is again indorsed in full. 

284. Parties. — The parties to a bill or note are either 
Original or Subsequent. The Original parties are those whose 
names appear upon it at the time of its inception. All others 
are Subsequent parties. Thus the original parties to a bill are 
the drawer, drawee and payee. The original parties to a note 
are the maker and the payee. In states having the Negotiable 
Instruments Law, persons other than the payee who write their 
names upon the back of the instrument before it has been origin- 
ally issued are called Irregular Indorsers, and have the same 
rights as other indorsers. In some other states such indorsers 
are treated as joint makers. When joint makers, they are" not 
entitled to notice of dishonor. 

285. Liabilities of Drawer. — The drawer of a bill is con- 
tinuously liable to the holder for the amount, provided the 
payee, or other holder, uses due diligence in presenting the 



I38 PRACTICAL LAW. 

bill for acceptance and for payment, and in the event of non- 
acceptance or non-payment gives the drawer lawful notice of 
that fact. In general, negligence in presentment for accept- 
ance, or in presentment for payment, or failure to give notice 
of non-acceptance or non-payment releases the drawer, unless 
he has waived these rights. 

If, however, the drawer had no reasonable expectation that 
his draft would be honored, as where one draws on a bank in 
which he has no funds ; or if he draws on himself, or upon a 
partnership in which he is a member; or if he draws upon a 
fictitious person, or upon one wanting in capacity to contract 
— in all these cases, the drawer remains liable upon the 
instrument and it may be enforced against him, whether pre- 
sentment has, or has not, been made, and whether he has, or 
has not, been given notice of dishonor. 

Illustration. — Culver drew three checks aggregating $2,500 upon 
the First National Bank, LaFayette, Ind., in favor of Marks, as payee. 
Culver had no funds in the bank and Marks did not present the checks 
for payment, nor did he give notice of non-payment to Culver. The 
court held that, because Culver had no funds on deposit, presentment 
and notice of non-payment were unnecessary, and that Culver remained 
liable to Marks for the amount. 

Culver v. Marks, 122 Ind., 554. 

286. Liability of Drawee. — The drawee has no liability 
upon a bill until he accepts it. But by acceptance his liability 
becomes fixed, and he is bound for payment of the obligation. 
After general acceptance, his liability is the same as that of 
the maker of a promissory note. The drawee must know the 
signature of his drawer. If he accepts a bill to which the 
drawer's signature has been forged, he can not thereafter 
repudiate the bill, or recover back, from a holder in due course, 
money paid upon it. 

287. Liability of Maker and Acceptor.— The maker of a 
bill and the acceptor of a note have an identical liability, which 
is to pay the obligation ai maturity. Neither demand nor notice 
is necessary to fix this liabilitv. It arises by absolute contract. 



NEGOTIABLE INSTRUMENTS. 1 39 

288. Liability of Payee. — The payee incurs no liability 
upon a bill or note until he negotiates it. If he indorses it, his 
liability becomes the same as that of any other indorser. If the 
paper is payable to bearer and the payee transfers it by mere 
delivery, his liability is the same as that of any other holder who 
transfers by delivery. 

289. Liability of Holders who Transfer by Delivery. — 

One who transfers by delivery a bill or note payable to bearer 
is not without liability. Certain warranties arise from the mere 
fact of transfer. The person who transfers paper by delivery 
warrants to his transferee, 

(a) That the instrument is genuine and in all respects what 
it purports to be; 

(b) That he has a good title to it ; 

(c) That all prior parties had capacity to contract ; 

(d) That he has no knowledge of any fact that would 
impair the validity of the instrument or make it valueless. 

290. Liability of General Indorsers. — Every indorser who 
does not qualify his indorsement, warrants to all subsequent 
holders in due course, 

(a) That the'instrument is genuine and in all respects what 
it purports to be ; 

(b) That he has good title to it ; 

(c) That all prior parties had capacity to contract; 

(d) That the instrument is, at the time of his indorsement, 
valid and subsisting; 

(e) And he further engages that, on due presentment, it 
shall be accepted or paid, or both, according to its requirements, 
and that, if it is dishonored, and the necessary proceedings on 
dishonor are duly taken, he will pay the amount of the instru- 
ment to the holder, or to any subsequent indorser who may be 
compelled to pay it. 

291. Forms of Indorsement. — Indorsement of a bill or 
note may be either special or in blank. An indorsement is spe- 
cial when it names a person as indorsee. An indorsement is in 
blank when it does not name a person as indorsee. 



I4O PRACTICAL LAW. 

Illustration.— ENDORSEMENT IN BLANK. 
Richard Roe. 
SPECIAL INDORSEMENT. 
Pay to the order of John Doe. 

(Signed) Richard Roe. 

An indorsement may also be restrictive, qualified or condi- 
tional. It is restrictive when (a) it prohibits the further nego- 
tiation of the instrument, or when (b) it constitutes the in- 
dorsee, the agent or trustee of the indorser. 

Illustration.— RESTRICTIVE INDORSEMENTS. 
Pay to John Doe only. 
(Signed) Richard Roe. 
Pay to the order of John Doe for collection for May account. 

(Signed) Richard Roe. 

An indorsement is qualified when it diminishes the liability 
which the indorser would otherwise incur. 

Illustration.— QUALIFIED INDORSEMENT. 
Without recourse. 
(Signed) Richard Roe. 
Pay to the order of John Doe without recourse on me. 

(Signed) Richard Roe. 

An indorsement is conditional when it names some state of 
fact as a condition precedent to payment. 

Illustration.— CONDITIONAL INDORSEMENT. 
Pay to the order of John Doe upon completion of the Merchants 
Savings Bank building now under construction. 

(Signed) Richard Roe. 

When an indorsement is conditional, the drawee may ignore 
the condition and make payment as though no condition had 
been imposed. No liability attaches for so doing, but a holder, 
who receives payment in violation of a condition named in an 
indorsement, will hold the proceeds subject to the rights of the 
person who indorsed conditionally. 



NEGOTIABLE INSTRUMENTS. I4I 

292. Liability of one who Indorses "Without Recourse." 

— It is popularly supposed that one who indorses "without 
recourse" has no further liability upon the paper. This is true 
so far as his liability as an indorser is concerned. He cannot 
be held for payment upon his indorsement. But, nevertheless, 
he is not wholly free from all responsibility. He is bound to 
his transferee upon the same implied warranties that arise in 
the case of one who transfers paper by delivery. 

293. Dishonor. — A bill is dishonored by non-acceptance, 

(a) When it is duly presented for acceptance and accept- 
ance is refused or cannot be obtained ; or 

(b) When presentment for acceptance is excused and the 
bill note is overdue and unpaid. 

294. When Presentment for Acceptance Must be Made. 

— Presentment for acceptance must be made, 

(a) When the bill is payable after sight, or in any other 
case where presentment for acceptance is necessary to fix the 
maturity of the instrument. 

A few states still allow three days' grace upon paper payable at 
sight. Still fewer allow three days' grace upon paper payable upon 
demand. In such states, a bill payable "at sight" must be promptly 
presented for acceptance, so that the date of maturity, which falls on 
the third day thereafter, may be fixed. For the same reason in states 
allowing grace on demand paper, a draft payable "on demand" must 
be presented for acceptance. Grace is now abolished in all states 
which have adopted the Negotiable Instruments Law, and in many 
others. 

(b) Where the bill expressly stipulates that it shall be pre- 
sented for acceptance ; or 

(c) Where the bill is drawn payable elsewhere than at the 
residence or place of business of the drawee. 

In no other case is presentment for acceptance necessary. 

295. When Presentment for Acceptance is Excused. — 

Presentment for acceptance is excused, and a bill mav be treated 



H 2 PRACTICAL LAW. 

as dishonored by non-acceptance in either of the following 
cases: — 

(a) Where the drawee is dead or has absconded, or is a 
fictitious person, or a person not having capacity to contract. 

(b) Where, after the exercise of reasonable diligence, pre- 
sentment cannot be made ; 

(c) Where, although presentment has been irregular, 
acceptance has been refused for some reason other than the 
irregularity of presentment. 

(d) Where the holder of a bill drawn payable elsewhere 
than at the residence or place of business of the drawee has not 
reasonable time in which to make presentment - for acceptance 
before the bill falls due. 

296. How Presentment for Acceptance is Made. — Pre- 
sentment for acceptance must be made by or on behalf of the 
holder at a reasonable hour on a business day, and before the 
bill is overdue, to the drawee or to some person authorized to 
accept or refuse acceptance on his behalf. 

When a bill is drawn upon two or more persons not part- 
ners, presentment must be made to each, unless one has author- 
ity to accept for all. 

297. Acceptance. — Acceptance should be made by the 
drawee writing the word "Accepted" across the bill and signing 
his name, thus: — ■ 

Accepted, 
Richard Roe. 
The acceptance may be dated, but it need not be. 

By consent of the holder, acceptance may be made upon a 
separate paper. This does not bind the acceptor, except in 
favor of the holder and of persons to whom it is shown and 
who give value for the bill on the strength of such acceptance. 
Acceptance upon a separate paper is sometimes taken for the 
purpose of avoiding delay. Acceptance may be made by letter 
or by telegram. (See Sec. 37). An unconditional written 
promise to accept a bill is deemed an actual acceptance in favor 
of every person who, in reliance thereupon, receives the bill for 
value. 



NEGOTIABLE INSTRUMENTS. I43 

An acceptance, to be sufficient, must not express that the 
drawee will pay in anything other than money. 

298. Time for Acceptance. — The drawee may take twenty- 
four hours in which to decide whether he will or will not accept 
the bill. Acceptance, when made, dates as of the day of pre- 
sentment. Thus a bill payable ten days after sight (which 
means 10 days after presentment), presented June ioth, and 
accepted June nth, would fall due June 20th, not June 21st. 

If a drawee to whom a bill is delivered for acceptance de- 
stroys it, or refuses within twenty-four hours (or within such 
other period as the holder may allow) to return the bill, he will 
be deemed to have accepted it. 

299. Kinds of Acceptance. — Acceptance is either general 
or qualified. A general acceptance assents without qualification 
to the order of the drawer. A qualified acceptance is one which 
varies from the intent of the bill as drawn. 

300. General Acceptance.— All parties to the bill prior to 
acceptance are entitled to have the bill accepted without quali- 
fication. If a qualified acceptance is offered, the holder may 
refuse to take it and may treat the bill as dishonored unless 
general acceptance is given. 

301. Qualified Acceptance. — When a qualified acceptance 
is taken, the drawer and indorsers cease to be liable on the bill, 
unless they give, or have given, express or implied consent. 

An acceptance is qualified in the following cases : — 

(a) When payment is contingent upon fulfillment of a 
condition : 

"Accepted, payable when goods consigned to me have 
been sold." 

Richard Roe. 

(b) When acceptance is for only a part of the amount 
of the bill ; 



144 PRACTICAL LAW. 

"Accepted, to be paid half in money and half m goods." 

Richard Roe. 
"Accepted as to $500," upon bill of $635." 

Richard Roe. 

(c) When an acceptance limits payment to one place 
only : — 

"Accepted, payable at First National Bank of Chicago 
only." 

Richard Roe. 

An acceptance, naming place of payment, but not excluding 
other places of payment is general and unqualified. A bill 
thus accepted cannot be treated as dishonored : — 

"Accepted, payable at First National Bank of Chicago." 

(d) When time, of payment is qualified; 

"Accepted on condition of renewal if not able to pay 
at maturity." 

(e) When less than all drawees accept. 

A bill drawn on a partnership after dissolution and accepted by one 
of the former members of the firm, but not by the others, is qualifiedly 
accepted. Such acceptance binds the person accepting, but not the 
person who does, not accept. 

302. Acceptance for Honor. — With the consent of the 
holder, a stranger to the bill may accept it supra protest (i. e. 
after protest) for the benefit of any party liable upon it. This 
is done to strengthen the credit of the paper, thereby protecting 
an obligor against the harmful consequences which might 
result from the instrument's dishonor. The acceptor for honor 
lends his credit to the bill. He is liable to the holder and to 
all parties subsequent to the one for whose benefit he accepts. 
The form of an acceptance for honor is as follows : — 

Accepted supra protest for honor of John Doe. 

Richard Roe. 



NEGOTIABLE INSTRUMENTS. 145 

303. Necessity of Presentment for Payment. — Present- 
ment for payment is not necessary to bind the maker of a note 
or the acceptor of a bill. These parties are bound by their sig- 
natures alone, and no further act is required to charge them 
with liability. If the instrument is payable at a specified place, 
for example at some bank, the liability of the maker or acceptor 
is not changed by the fact that presentment for payment is 
not made at such place. The only consequences of neglect to 
make presentment for payment at the place named in the 
instrument are (i) If the maker or acceptor was ready and 
able to make payment at that place at the time of maturity, 
further interest and costs of suit cannot be recovered from him 
in case suit is brought without such presentment. Ability and 
readiness to pay at the time and place of maturity is equivalent 
to a tender. (2) If damage to the maker or acceptor has 
resulted from the holder's failure to make presentment at the 
time and place specified in the bill or note, such damage may 
be set off in reduction of the amount due upon the instrument. 

Presentment for payment is necessary to bind the drawers 
and indorsers of a bill. It is equally necessary to bind the 
indorsers upon a note. In other words, failure to present a 
negotiable instrument for payment at maturity, discharges the 
drawers of a bill, and the indorsers of a bill or note, from fur- 
ther liability. This is the general rule. It is subject to the 
following exceptions: — 

(a) Presentment for payment is not required in order to 
charge a drawer when he has no right to expect or require the 
drawee or acceptor to pay the bill. 

Thus, presentment of a check drawn upon a bank in which 
the drawer has no funds and no credit, is unnescessary. 

(b) Presentment for payment is not required in order to 
charge an indorser when the instrument was made or accepted 
for his accommodation, and he has no reason to expect that 
the instrument will be paid if presented. The reason for this 
is that such indorser is really the party finally liable on the 
paper. 

Illustration. — As an accommodation, A issued his note for 
$100 payable to the order of B. B indorsed and discounted the paper 

10 



146 PRACTICAL LAW. 

and used the proceeds. A received no consideration for the instrument. 
In such case B would not be entitled to notice of non-payment because 
he is not entitled to indemnity from A. B himself is the person finally 
liable for payment. 

(c) Presentment for payment is excused when, after the 
exercise of reasonable diligence, presentment cannot be made. 

(d) Presentment for payment need not be made when the 
drawee is a fictitious person. 

(e) Presentment for payment need not be made when 
presentment has been expressly or impliedly waived. 

304. Waiver. — A waiver written or printed above the sig- 
nature of an indorser binds such indorser only, and does not 
apply to prior or subsequent indorsers. But if the waiver is 
embodied in the bill or note itself, it binds all parties to the 
instrument. 

Under the Negotiable Instruments Law the words "protest 
waived" written or printed on the face of a bill waive all form- 
alities otherwise needful to charge the drawers and indorsers. 

The same words written or printed on the face of a note, 
waive all formalities otherwise needful to charge the indorsers. 

The same words written or printed above the signature of 
the indorser of a bill or note, waive all formalities otherwise 
needful to charge such indorser. 

In states where the Negotiable Instruments Law is not in 
force, every step waived should be mentioned in the waiver. 

In states in which the Negotiable Instruments Law is in 
force, the words "protest waived" 

(a) Waive presentment for acceptance (if a bill) ; 

(b) Waive protest for non-acceptance (if a bill) ; 

(c) Waive notice of dishonor by non-acceptance (if a 
bill) ; 

(d) Waive presentment for payment (as to all negotiable 
instruments) ; 

(e) Waive protest for non-payment (if a foreign bill) ; 

(f) Waive notice of dishonor by non-payment (as to all 
negotiable instruments). 



NEGOTIABLE INSTRUMENTS. 1 47 

It will be remembered that drawers and indorsers are 
entitled to protest of foreign bills (but not to protest of notes 
and inland bills) unless this right is waived. 

A waiver of notice of dishonor is not a waiver of present- 
ment and protest. All rights not waived remain in force. 

305. Implied Waiver. — If a drawer or indorser who has 
been discharged from liability by want of presentment, protest 
or notice of dishonor, afterwards promises payment, he will be 
held to have waived the omitted formalities, and cannot escape 
liability by reason of the such omissions. 

Waiver may also be implied from the indorser's conduct 
prior to maturity. 

Illustration. — McDaniel gave his note to Markland, Dodge & 
Moore, who indorsed it for purposes of negotiation. Before the note 
fell due, Dodge, a member of the firm of Markland, Dodge & Moore 
requested the holder of the note not to protest it for non-payment at 
maturity, promising to see that it was paid and that the holder should 
not lose a dollar. Held, that this amounted to a waiver of the right to 
demand, notice and protest. 

Markland, Dodge & Moore v. McDaniel, 51 Kan., 350. 

306. Presentment for Payment. — 

(a) Presentment must be made by the holder or someone 
authorized to receive payment in his behalf ; 

(b) Presentment must be made at a reasonable hour of 
a business day. To be reasonable, the hour must be one in 
which it is customary to transact business at the place of pre- 
sentment. Thus, if the instrument is payable at a bank, pre- 
sentment there must be made during banking hours. 

(c) Presentment must be made at a proper place, namely, 
at the place of payment specified in the instrument. 

If no place of payment is specified, but the address of the 
person to make payment is given in the instrument, then at 
that place ; 

If no place of payment or address of the payor appears in 
the instrument, then at the usual place of business or residence 
of the person to make payment. Presentment at such place 
of business during business hours will be sufficient, even though 
there is no person present having; authority to pay. 



148 PRACTICAL LAW. 

When none of the foregoing provisions for presentment are 
available, then presentment may be made wherever the party 
to make payment can be found, or at his last known place of 
business or residence. 

(d) Presentment must be made to the person primarily 
liable, or if he is absent or inaccessible, to any person found at 
the place where presentment is to be made. 

307. Instrument Must be Shown. — The instrument must 
be exhibited to the person from whom payment is demanded, 
so that he may have an opportunity to see that it is genuine, 
and to determine its amount and the right of the holder to 
receive payment. When the instrument is paid, it must be 
delivered up to the person paying it. 

If the original instrument is lost, presentment of a copy 
with an offer of indemnity will be sufficient. 

308. Protest. — A foreign bill of exchange, when dishon- 
ored by non-acceptance or non-payment must be protested, or 
the drawers and indorsers will be discharged of further liabil- 
ity. Dishonored notes and inland bills may be, and, in practise 
are protested, but failure to protest them will not relieve the 
drawers and indorsers. Protest of notes and inland bills 
is therefore, not a legal necessity. It is resorted to as a matter 
of uniformity and convenience. 

The student must remember that protest for dishonor and 
notice of dishonor are separate and different things. 

A Protest (or Certificate of Protest, as it is often termed) 
is a written statement made by a Notary Public under his seal 
of office and attached to the bill or note, for the purpose of 
furnishing every subsequent holder a means of readily proving 
that the instrument has been presented and dishonored. It is 
no part of the Notary's duty to give the drawers and indorsers 
notice of dishonor. This is a separate task which devolves 
upon the holder. In actual practise, the Notary often per- 
forms this service, but in so doing he acts unofficially and 
merely as the holder's agent. 



NFGOTIABLE INSTRUMENTS. 149 

A protest may be made by any respectable resident of the place 
where the bill is dishonored, in the presence of two or more credible 
witnesses. Such protest should be the same in substance as a protest 
made by a Notary. This method of protest is useful when a Notary is 
not available. 

309. Contents of Certificate of Protest. — The protest 
must set forth 

(a) The time and place of presentment; 

(b) The fact that presentment was made and the manner 
thereof ; 

(c) The cause or reason for protesting the bill; 

(d) The demand made and the answer given, if any, or 
the fact that the drawer or acceptor could not be found. 

The protest should be made on the day of dishonor. 

310. Summary of Omissions Which Discharge Drawers 
and Indorsers. — In dealing with negotiable instruments, con- 
stant care must be exercised to prevent the premature release 
of" drawers and indorsers. When the formality is not waived 
or otherwise excused, drawers and indorsers of a foreign 
bill are discharged, 

(a) By failure to present the instrument for acceptance, 
if acceptance is required ; 

(b) By failure to protest for non-acceptance, when re- 
quired ; 

(c) By failure to give notice of dishonor by non-acceptance 
when required ; 

(d) By failure to make presentment for payment at ma- 
turity ; 

(e) By failure to make protest for dishonor by non-pay- 
ment ; 

(f) By failure to give notice of dishonor by non-payment. 
When the formality is not waived or otherwise excused, 

drawers and indorsers of an inland bill are discharged, 

(a) By failure to present the instrument for acceptance if 
acceptance is required ; 

(b) By failure to give notice of dishonor by non-acceptance 
when required; 



15O PRACTICAL LAW. 

(c) By failure to make presentment for payment at ma- 
turity ; 

(d) By failure to give notice of dishonor by non-payment 
at maturity. 

When the formality is not waived or otherwise excused, 
indorsers of a note are dicharged, 

(a) By failure to make presentment for payment at ma- 
turity ; 

(b) By failure to give notice of dishonor by non-payment. 

311. Sureties. — One who signs his name upon the face of 
a note, having no pecuniary interest therein, is a surety. As 
to third persons he is a joint maker. He is not released by 
failure to make presentment for payment, nor is he entitled 
to notice of non-payment. 

312. Guarantors. — We occasionally find negotiable paper 
bearing upon its reverse side a written undertaking to this 
effect ; 

For value received I hereby guaranty payment at maturity of the 
within obligation. 

John Doe. 

This is not an indorsement. It is a guaranty. The guaran- 
tor is not entitled to notice of dishonor in the sense that an 
indorser is. Want of notice does not, standing alone, discharge 
him. Yet he should be given notice of dishonor with reason- 
able promptness, for otherwise, if he suffers damage by want 
of notice, he will be discharged to the extent of the damage 
sustained. 

Any extension of the obligation or other change therein, 
made without the guarantor's consent, discharges him from 
further liability. 

313. Material Alteration. — A holder in due course of a 
materially altered instrument may enforce it according to its 
original terms, provided he is not a party to the alteration. 



NEGOTIABLE INSTRUMENTS. I5I 

States in which the Negotiable Instruments Law is not in force, 
generally hold a materially altered instrument void even in the hands 
of a holder in due course. Such states treat the altered instrument as a 
forgery. 

314. Forgery of Signature. — An instrument bearing a 
forged signature is void in the hands of all holders. 

315. Usury. — Usury is unlawful interest. For taking usury 
different states attach different penalties. In some, the interest 
in excess of the legal rate is forfeited. In others, all interest 
is forfeited. In a few, both principal and interest are for- 
feited. In many states there is no limit to the rate of interest 
that may be lawfully charged. (See Appendix, Table C.) 

316. Bonuses. — If a lender of money or one acting as his 
agent receives, in addition to the legal rate of interest, a bonus, 
which, added to the interest reserved, makes a total in excess 
of the highest legal rate, the transaction is usurious. But such 
a bonus may be legally paid by the borrower to his own agent 
for procuring the loan. On the first proposition the courts 
are not in harmony ; as to the last, there is no conflict of opin- 
ion. 

Illustration. — Keaton applied to Smith, a broker, to procure a 
loan. Smith took Keaton's note for $300 and turned it over to the 
money loaner, Vahlberg, his principal, who paid Smith therefor $300, 
less the highest legal rate of interest. Smith, in turn, paid Keaton $261, 
keeping the difference to cover cost of drafting, recording, and his 
bonus. Held, usurious. 

Vahlberg v. Keaton, 51 Ark., 534. 

317. Payment of Interest in Advance. — It is not usury to 
collect the highest legal rate at the time of making the loan. 
In other words, the interest agreed upon, even though it be 
the highest rate, may be deducted from the amount turned 
over by the lender to the borrower at the time of making the 
advance. 



Loans, Credits and Collections* 



SECURITIES, 

METHODS OF COLLECTION, 



153 



CHAPTER XXIV. 



LOANS, CREDITS AND COLLECTIONS. 

318. Loans. — Persons, firms and corporations, both in 
prosperity and in adversity, often find the fluctuating demands 
of business such that additional capital is required. Some- 
times this capital is obtained by selling an interest in the busi- 
ness, but more frequently the needed money is procured by 
negotiating a loan. From the borrower's standpoint, it is 
important to, arrange for the lowest obtainable interest rate 
and for adequate time in which to make payment. The lender's 
chief care should be the sufficiency of the security taken. 

319. Security. — Securities are of many kinds. They may 
consist of personal undertakings, as suretyships, indorsements, 
indemnity bonds and guaranties, or they may be in the nature 
of property, real or personal, mortgaged or pledged to secure 
repayment. 

320. Suretyship. — Suretyship is an undertaking to answer 
for the debt or default of another. The surety is bound to the 
promises as fully as the principal promisor. If the surety 
is obliged to pay, he has a right to full reimbursement from his 
principal. If the principal debtor proves worthless, the surety 
is without remedy and hence must bear the whole loss. Of 
course, if both surety and principal prove worthless, the loss 
will fall upon the lender. 

321. Indorsement. — As before stated, the chief obligation 
of an indorser is conditional. It is that, if the persons already 
liable on the instrument refuse to pay it, he will, provided 

154 



LOANS, CREDITS AND COLLECTIONS. 155 

proper presentment (and protest, if a foreign bill) is made, and 
provided legal notice of dishonor is given to him. The indorser 
may waive any right to which he is entitled. 

If an indorser makes payment of the obligation, he is 
entitled to full reimbursement from any discharged party who 
precedes him upon the obligation. 

Joint indorsers can recover from each other proportionately 
only. That is to say, if several persons agree among them- 
selves to join in indorsing paper, each to be liable for his pro- 
portion only, they can enforce the agreement as among them- 
selves. As to third persons, they are each individually liable 
for the whole amount. But one of their number who has 
paid the whole amount can enforce only proportionate coa- 
tribution from his co-indorsers. Thus, if three persons agree 
to indorse jointly and one of them pays the whole debt, he is 
entitled to a contribution of one third each from the other two 
joint indorsers. 

322. Indemnity Bonds. — Indemnity Bonds express a 
suretyship undertaking, and this suretyship may be for the pay- 
ment of money or for the performance of any other obligation. 
Indemnity bonds are to be distinguished from money bonds, 
the latter being, in general, a direct and unconditional principal 
promise to pay money. 

323. Guaranties. — A Guaranty is a collateral undertaking 
to pay the debt of another in case he does not pay it. To be 
valid, it must be in writing, signed by the guarantor. It may 
be in the form of a letter or telegram. If a guaranty is 
given as an inducement to the granting of credit, the credit 
granted will be a sufficient consideration to support it. But if 
it is given after the credit has been granted, there must 
be a distinct consideration given to support it. This con- 
sideration may consist in a renewal of a note, or in an 
extension of time of payment granted to the person whose 
obligation is guaranteed. Or it may consist in a forebearance 
on the part of the promisor. Thus if A were about to sue B 
upon a matured claim, and if C were to agree with A that if 



156 PRACTICAL LAW. 

A would refrain from suing, he, C, would guaranty payment 
of the claim, A's forebearance would be a sufficient considera- 
tion to support the guaranty. 

A guaranty is to be construed according to what appears 
to have been the intent of the parties, without strict, technical 
nicety. If the intent appears to have been that the guaranty 
was to extend to a series of transactions, it will be so construed 
by the courts. 

Illustration. — The following guaranty was held to continue until 
revoked. 

"Sir : You can let J. L. Day have what goods he calls for, and I 
will see that the same are settled for." 

Hotchkiss v. Barnes, 34 Conn., 27. 

When the guaranty is of the performance of a contract, the 
guarantor is entitled to have the contract stand unchanged. If 
a change of terms is made without his consent (as, for example, 
by granting an extension of time), he is discharged. 

So, too, a guarantor is entitled to the benefit of all security 
held by the promisee. If the guarantor pays the obligation, he 
is entitled to have such security delivered over to him. If the 
promisee releases any collateral security by him held, the 
guarantor is thereby discharged. 

Illustration. — The First National Bank of Paw Paw loaned The 
Cleveland Bay Horse Co. $4,000 on its note, guaranteed by Walker and 
others. Two notes of $500 each, signed by Lange and Porter as 
joint makers, were taken by the bank from the Horse Co. as collateral 
to the $4,000 loaned. Afterwards, the bank permitted two notes of 
$500 each, signed by Lange alone to be substituted for the collateral 
notes signed by Lange and Porter, thereby releasing Porter. This 
was done without the consent of the guarantors. The court held that 
the guarantors were released by this reduction of the collateral security. 
National Bank v. Walker, 115 Mich., 434. 

When a guarantor has paid the guaranteed obligation, he is 
entitled to recover pro rata from his joint guarantors, if any 
there are, or in toto from the principal debtor. 

324. Mortgages. — A mortgage is a conveyance of prop- 
erty as collateral to secure the payment of a debt or the per- 
formance of an obligation. The maker of a mortgage is a 



LOANS, CREDITS AND COLLECTIONS. 1 57 

"mortgagor." The person to whom the mortgage is made 
is a "mortgagee." Mortgages are of three general classes: 
(a) Real Estate Mortgages, (b) Chattel Mortgages, and (c) 
Dual Mortgages, covering both chattels and real estate. 

325. Real Estate Mortgages. — Mortgages of real estate 
are those which create a lien upon land. They must be in 
writing, and should always be acknowledged and recorded. In 
some states two subscribing witnesses are required. Mortgages 
generally take priority in the order in which they are recorded. 
Thus, the mortgage first recorded must be first satisfied out 
of the estate in case of foreclosure. The mortgages recorded 
last would, in case of foreclosure, receive only the remaining 
surplus after all mortgages recorded earlier had been paid in the 
order of their record. The reason for this rule is that all 
persons are entitled to rely upon the public records as true; 
all persons are entitled to believe that all transfers and incum- 
brances affecting the title appear upon these records. In 
this the law protects them. Those whose forebearance, negli- 
gence or fraud has suffered instruments affecting title to remain 
unrecorded must suffer the consequences. 

But "when the reason fails the rule fails." If a mortgagee 
takes his mortgage with knowledge of an existing, unrecorded 
mortgage, he takes subject thereto, and he cannot gain priority 
by recording his mortgage first. 

326. Form of Real Estate Mortgage. — While nearly 
every state, by custom or by statute, uses forms in some respects 
differing from those in other jurisdictions, the following will 
give the student an idea of the terms and clauses usually appear- 
ing in a simple mortgage of real estate. When mortgages are 
intended to secure large and varied interests, as, for example, 
a bond issue by a great corporation, voluminous instruments 
are required to fully anticipate and provide for all con- 
tingencies. 

REAL ESTATE MORTGAGE. 
THIS INDENTURE, Made this first day of May, A. D. 1906, 
between Hiram Smith (unmarried) of Grand Rapids, Kent County, 



I58 PRACTICAL LAW. 

Michigan, as party of the first part, and Joseph Dane, of the same 
place, as party of the second part, 

WITNESSETH, That the said party of the first part, for and in 
consideration of the sum of five hundred ($500) dollars to him in 
hand paid by the said party of the second part, the receipt whereof 
is hereby confessed and acknowledged, has granted, bargained, sold, 
released, enfoeffed and confirmed, and by these presents does grant, 
bargain, sell, remise, release, enfoeff and confirm unto the said party 
of the second part, and to his heirs and assigns, FOREVER, all that 
certain piece or parcel of land situate in the township of Bedford, in 
the County of Calhoun and State of Michigan, and described as follows, 
to wit : 

Lot numbered one (1) in Eldredge Addition to Urbandale, as. 
appears by the recorded plat thereof, 

Together with the hereditaments and appurtanences thereunto 
belonging or in anywise appertaining; TO HAVE AND TO HOLD 
the above bargained premises unto the said party of the second part, 
and to his heirs and assigns, to the sole and only proper use, benefit 
and behoof of the said party of the second part, his heirs and assigns, 
FOREVER. 

Provided Always, and these presents are upon this Express Condi- 
tion that if the said party of the first part shall and do well and truly 
pay, or cause to be paid to the said party of the second part, the sum 
of five hundred ($500) dollars, on or before one year after the date 
hereof, together with annual interest thereupon at the rate of six per 
centum per annum, according to one promissory note bearing even date 
herewith, executed by said Hiram Smith to the said party of the second 
part, to which this indenture is a collateral security, then these presents 
and said note shall cease and be null and void. But in case of non- 
payment of the said sum of five hundred ($500) dollars, or the interest 
thereof, or of any part of said principal or interest, at the time, in the 
manner, and at the place above limited and specified for the payment 
thereof, then in such case it shall and may be lawful for the said 
party of the second part, his heirs, executors, administrators or assigns, 
and the said party of the first part does hereby empower and authorize 
the said party of the second part, his heirs, executors, administrators 
or assigns, to grant, bargain, sell, release and convey the said premises, 
with the appurtenances, at Public Auction or Vendue, and on such 
sale to make and execute to the purchasers, their heirs and assigns, 
forever, good, ample and sufficient deed or deeds of conveyance in law, 
rendering the surplus moneys (if any there should be) to the said 
party of the first part, his heirs, executors or administrators, after de- 
ducting the costs and charges of such vendue and sale aforesaid. 



LOANS, CREDITS AND COLLECTIONS. 1 59 

IN WITNESS WHEREOT," The party of the first part has 
hereunto set his hand and seal the day and year first above written. 

Hiram Smith [l. s.] 
Signed, Sealed and Delivered 

in the Presence of 
Winter White 
Charles McNiel. 

(A certificate of acknowledgement, as in a deed (See 
Sec. 208) should be added.) 

327. Chattel Mortgages.— When mortgages are confined 
to personal property they are called Chattel Mortgages. When 
possession of the mortgaged chattels is immediately delivered 
to the mortgagee, the chattel mortgage need not be filed 
or recorded, and need not be even reduced to writing. But 
when possession of the mortgaged chattels is retained by 
the mortgagor, the mortgage must be in writing and filed, 
or recorded (as the law of the place where the chattels are 
situate requires), or it will be void as to subsequent creditors 
and as to vendees of the mortgaged property who purchase 
without notice that the property is mortgaged. 

It is always well, though not always necessary, to have a 
chattel mortgage acknowledged, and in some states subscrib- 
ing witnesses are required. 

Like real estate mortgages, chattel mortgages are, in 
general, entitled to priority in the order in which they are 
filed or recorded. But a mortgage known to the mortgagee 
to be a second mortgage* when taken, remains subject to an 
unfiled or unrecorded first mortgage, filed or recorded later, 
or, perhaps, not filed Or recorded at all. 

Creditors whose claims accrued prior to the giving of an 
unfiled or unrecorded mortgage cannot complain that the 
instrument was kept from the records, for they have not been 
injured thereby. 

328. The Insecurity Clause. — Chattel mortgages usually 
provided that, if the mortgagee shall at any time believe that the 
mortgage debt is insecure, he may immediately take possession 
of the mortgaged property. It is usually, provided that he 



l6o PRACTICAL LAW. 

shall, upon so taking possession, keep the property in a place 
of safety until the debt falls due, and then, that he may fore- 
close unless payment is made. But, from the standpoint of the 
mortgagee, at least, it is usually better to provide that, upon 
taking possession of the mortgaged property, he may proceed 
at once to foreclose upon and sell the same, as, otherwise, stor- 
age charges and depreciation will commonly work a reduction 
of his security. 

329. Permission to Sell. — When a chattel mortgage is 
given upon the stock in trade of a going concern, a clause 
should be inserted giving the mortgagee "permission to sell out 
of the mortgaged property in regular course of trade, provided 
that the total value of the property covered by the mortgage 
shall not be at any time reduced below its present value." 
Such mortgage should be so drawn as to cover all goods from 
time to time put into or added to the stock. 

In many states, chattel mortgages upon stocks of goods 
left in the hands of the mortgagor for sale in the regular 
course of trade are held void as to creditors. So in some states 
"bulk sales" (sale of an entire stock of goods) are void as to 
creditors unless certain statutory requirements have been com- 
plied with. 

330. The Mortgage Note. — It is usual to accompany the 
mortgage with a note (or bond) to which the mortgage is 
collateral. The mortgage is mere security. An action may be 
maintained upon the note with or without reference to the 
mortgage. 

The mortgage note should always be identified with the 
mortgage. This may be done by filling up the blanks of an 
ordinary note in the usual way and then adding, "This note 
is secured by a real estate (or chattel, as the case may be) 
mortgage of like amount and date." 

331. Description of Mortgaged Property. — The property 
mortgaged should be so described that a stranger could identify 
it without calling in outside aid. Real estate should be de- 



LOANS, CREDITS AND COLLECTIONS. l6l 

scribed as in a deed. Chattels should be described by kind, 
quantity, quality, individual peculiarities and special marks. 

332. Foreclosure. — If the mortgagee makes default in 
performance of the conditions of his obligation, the mortgagor 
may take proceedings to bar all further rights of the mort- 
gagee in the mortgaged property. These proceedings are 
called Foreclosure. 

All valid mortgages, whether of real estate or of chattels, 
or of both, may be foreclosed by means of an action for that 
purpose brought in a court of competent jurisdiction. But 
court proceedings are not always necessary. The statutes of 
some states provide that real estate mortgages may be fore- 
closed by merely advertising the property a given length of 
time, and then selling it at public auction to the highest bidder. 
Chattel mortgages may usually be foreclosed in this manner. 

333. Sale. — Upon sale, the utmost care should be taken 
to dispose of the property at the highest prices obtainable. 
Otherwise, the mortgagee may, in some cases, have the sale 
set aside. The mortgagee may bid upon the property if he 
does so in good faith, and, in case it is struck off to him, may 
credit the price upon the mortgage and note. 

334. Deficit and Surplus. — If the mortgaged property 
sells on foreclosure sale for less than the amount of the mort- 
gage, interest and costs, the mortgagee has an action against 
the mortgagor for the deficit. If the property sells for more 
than the amount of the items just named, the surplus will go 
to the mortgagee, or to those to whom his interest has been 
transferred by way of second mortgage or otherwise. 

335. Rights of Purchaser. — The purchaser at a mortgage 
sale is substituted to such rights as the mortgagor had in the 
property at the time the mortgage was given, also to all after- 
acquired rights covered by the mortgage. 

336. Redemption. — In some states the mortgagor is 
allowed a certain time in which to redeem after the sale. When 

11 



162 PRACTICAL LAW, 

this is allowed, redemption may be made by payment to the 
mortgagee of the debt, interest and cost. The right of redemp- 
tion may be assigned. 

337. Subrogation. — The holder of a subsequent lien by. 
mortgage or otherwise, may pay off a prior mortgage, and, upon 
so doing, is entitled to an assignment thereof. This right is 
conferred upon subsequent lien holders to enable them to pro- 
tect themselves against loss. Sale of property under a prior 
lien cuts off all subsequent liens. Thus if A, B and C held re- 
spectively a first, second and third mortgage on the property of 
D, foreclosure sale by A would cut off the liens of B and C. 
Thus, if E bought the property on A's foreclosure, he would 
take it free from the mortgages of B and C. 

338. Dual Mortgages. — When a mortgage is dual in its 
nature, the provisions of law relating to both real estate and 
chattel mortgages should be observed. For example, if the 
property is situate in a state requiring real estate mortgages to 
be recorded with a register of deeds, and chattel mortgages 
to be filed with the township clerk, the dual mortgage should 
be recorded with the one and filed with the other officer. 

339. Deeds Operating as Mortgages. — When an absolute 
deed of land is given as security for the performance of an 
obligation, the deed will be held by the courts to be a mortgage. 
It must be foreclosed before title will vest in the grantee. After 
foreclosure, the grantor will be entitled to redeem the property 
in the same manner as though the deed had been in the form 
of a mortgage. 

Illustration. — Ida A. Clark was the owner of certain real estate 
upon which a dwelling house was situated. Upon this house she took 
out a fire insurance policy of $2,000. One of the provisions of the 
policy was that it should become void in case of sale and conveyance 
of the property without the insurance company's consent. Ida A. 
Clark afterwards gave a deed of the property to Clark A. Rhodes 
as security for a note, without the insurance company's consent. The 
house burned and the insurance company claimed that the policy of 



LOANS, CREDITS AND COLLECTIONS. 1 63 

insurance had been avoided by the conveyance. The court held, 
however, that the deed was a mere mortgage, and that, since the 
policy was not avoided by the giving of mortgages, the policy remained 
in force. 

Sun Fire Office of London v. Clark, 53 Ohio State, 414. 

340. Deed with Contract to Reconvey. — When an uncon- 
ditional purchase and conveyance of property's made, the deed 
will not be construed to be a mortgage on account of the exe- 
cution 'of a contract giving the grantor the privilege of repur- 
chasing the property within a certain time at a fixed price. In 
this case, the grantee has said to the grantor, in effect: "I 
will not make you a loan upon your property, but I will pur- 
chase it outright. I will then give you an option for its re- 
purchase. If you do not exercise the option, the property will 
simply remain mine. The same amount of money that would 
enable you to repay a loan will enable you to exercise the option 
for repurchase. It is no hardship to you, but it may save me 
the cost and delay incident to foreclosure of a mortgage." 

341. Bill of Sale Given as Security. — When a bill of sale 
is given as security for the performance of an obligation (for 
example, as security for the payment of a debt) the instru- 
ment, although expressing an absolute sale on its face, will be 
construed as a mere chattel mortgage. In such case, fore- 
closure is necessary to vest complete title in the vendee. But, 
on the same principle expressed in the last preceding section, an 
absolute and unconditional sale, followed by an option for re- 
purchase, is not a chattel mortgage, and in such case no fore- 
closure is necessary. 

342. Assignment of Mortgage. — A mortgage may be as- 
signed and the assignee will be substituted thereby to all of the 
rights of his assignor. Assignment of a mortgage carries with 
it title to the note secured by the mortgage, but assignment of 
the note does not ipso facto carry with it title to the mortgage. 

343. Pledges. — A pledge is a delivery of personal property 
to be held as security for the performance of an obligation. 



164 PRACTICAL LAW. 

The person making the pledge is a Pledgor. The person to 
whom the pledge is made is a Pledgee. 

Any personal property may be pledged. Goods, chattels, 
money, promissory notes, patent rights, copyrights, policies of 
insurance and money bonds are all subjects of pledge. Shares 
of corporate stock, on account of their convenience of delivery, 
marketability and usually known value are used as pledges 
more frequently than any other class of property. Such shares, 
indorsed in blank, pinned to a note and delivered to the pledgee, 
form daily the security for millions of dollars advanced by 
banks in money centers on call and short time loans. 

344. Pledges of Corporate Stock. — When corporate stock 
is offered as a pledge, the pledgee should assure himself of 
two things: first, that the certificate is genuine, and, second, 
that the corporation by which it is issued has no existing lien 
by law upon the shares which it represents. If there is doubt 
upon either of these points, the information should be procured 
from disinterested officers of the issuing corporation. Spurious 
certificates are not less common than other forgeries. It should 
be remembered, too, that, when the laws under which a corpor- 
ation is organized give the corporation a lien (as they fre- 
quently do) upon the shares of stockholders who are indebted 
to the corporation, such lien is paramount to the claim of any 
pledgee who takes the stock after the corporate lien has at- 
tached. Investigation is the pledgee's best protection. He 
must ascertain the value and condition of the pledged stock at 
his own peril. 

345. Foreclosure of Pledge.-— If the pledgor fails to per- 
form the obligation secured by the pledge, the pledgee, after 
demanding payment, may proceed to foreclose the pledge by 
advertising it for a reasonable length of time and then selling 
it at public auction to the highest bidder. Notice of the time 
and place of the sale should be given to the pledgor. 

If the pledged property is of great value, it is sometimes 
deemed prudent to apply to a proper court for a decree of fore- 



LOANS, CREDITS AND COLLECTIONS. 165 

closure and order of sale, but this is rarely done, as it involves 
considerable delay and expense. 

At foreclosure sale, only so much of the property can be 
sold as will pay the debt. But if the property is indivisible, it 
may all be sold. Any surplus of property or money remaining 
after payment of the debt, interest and costs of sale, must be 
delivered at once to the pledgor, or his assigns. 

346. Liens. — A lien is a claim and right of possession 
which one person has upon the property of another as security 
for some debt or charge. 

Liens may be created by contract or by operation of law. 
Thus mortgages and pledges are created by contract, while 
vendors' liens, workmen's liens, carriers' liens, inn keepers' 
liens, attorney's liens, attachment liens and judgment or execu- 
tion liens are created by operation of law. 

347. Vendors' Liens. — A vendor of personal property has 
a lien thereupon for the purchase price so long as he retains 
possession. Thus, if goods have been sold by a merchant and 
set aside for the customer, the customer cannot lawfully take 
them away until the purchase price has been paid. But if the 
merchant voluntarily surrenders possession, he waives his 
lien. 

Vendors of building materials are usually given a lien by 
statute upon materials used in making improvements upon land. 
These liens, to be effective, must usually be enforced within a 
specified time, or the protection will be lost. They are enforced 
by selling, in due course of law, the debtor's interest in the 
land. Such liens are inferior to recorded prior mortgages 
upon the real estate. Thus, when a vendor sells to a vendee of 
doubtful credit, materials for the construction of buildings 
which are to be attached to land, he should first investigate the 
title to the land, so that he may know the extent of the security 
that may be obtained by lien in case of non-payment. 

348. Workmens' Liens. — When a workman performs 
services upon personal property, he has a lien thereupon for the 



1 66 PRACTICAL LAW. 

value of his services. Thus, a blacksmith who shoes a horse 
has a lien upon the horse; a repairer of machines has a lien 
upon the machines repaired ; a binder of books has a lien upon 
the books bound. This lien is absolutely waived by surrender 
of the property. The lien holder must retain possession, or his 
lien is lost. 

But if the lien holder is dispossessed by force or by stealth, 
he may retake the property. He cannot, however, recover it 
from an innocent purchaser to whom the obligee has sold it. 

Workmen who construct permanent improvements upon 
land are usually permitted by statute to acquire a lien upon the 
•land for the value of their services. 

349. Liens of Carriers and Others. — A carrier has a lien 
for his charges upon the goods carried. An innkeeper has a 
lien upon his guests goods for entertainment supplied. A 
liveryman has a lien upon animals left with him for care and 
keep. An attorney has a lien upon the papers of his client and 
upon the judgment or decree rendered, until payment is made 
for his services. In all cases, surrender of the property termin- 
ates the lien. 

350. Liens by Attachment. — A creditor whose claim is 
due may speedily acquire a lien upon any property, real or per- 
sonal, not exempt from execution, belonging to his debtor, 
provided the debtor 

(a) Is about to remove his property from the state ; or 

(b) Has sold or concealed his property, or is about to do 
so, to defraud his creditors; or 

(c) Has absconded or concealed himself to avoid service 
of process. 

There are many other grounds of attachment recognized 
in various states, the ones just named being, possibly, the most 
usual. In some states attachments may be issued upon debts 
not due, but this is not the general rule. In the New England 
States, attachment is permissible in all actions brought upon 
contracts. 



LOANS, CREDITS AND COLLECTIONS. 167 

In most states the plaintiff in an attachment suit must file 
a bond with the court, indemnifying the defendant against all 
damages which may be occasioned by the seizure of his property 
in case the plaintiff fails or neglects to recover judgment. 

351. Garnishment. — Garnishment is an attachment of 
credits, money or property in the hands of a third person. It is 
of frequent use in the collection of debts. Thus, if A owes B, 
and C owes A, B may attach the credit of A in C's hands and 
have it applied in payment of A's debt to B. In states whose 
laws make no provision for garnishment the same result may 
be generally attained by attachment. 

352. Judgment Liens. — In many states judgments become 
a lien upon the real estate of the judgment debtor. In other 
states the lien may be obtained by issuing an execution and 
making a levy. If the judgment is not paid, the property may 
be advertised and sold, practically as in the case of a mort- 
gage. 

Execution levies may be made upon personal property, 
which may be sold to satisfy the claim. 

353. Exemptions. — The laws of all states of the Union 
provide that certain of the property of debtors shall be exempt 
from the liens of judgments, and from seizure by attachment or 
execution. These laws are made for the benefit of society at 
large, it being obviously against public policy to make a debtor 
a public charge by depriving him of his means of support. In 
most states a homestead of fixed extent or value is thus pre- 
served to the debtor. He is usually spared, also, wearing 
apparel, household furniture and provisions, necessary domestic 
animals and the tools or utilities of his trade or profession. 
Statutes providing exemptions are construed liberally in favor 
of the debtor ; 

The safe of a jeweler has been held exempt. 
Re Estate of McManus, 87 Cal., 292. 

The piano of a music teacher has been held exempt. 
Amend v. Murphy, 69 111., 337. 



1 68 PRACTICAL LAW. 

A barber's chair has been held exempt under a statute exempting 
"tools." 

Allen v. Thompson, 45 Vt, 472. 

A printing press and type were held exempt under a statute 
exempting ''tools and instruments." 

Davidson v. Sechrist, 28 Kan., 324. 

Pension money, and property purchased with pension 
money is exempt. The proceeds of a homestead sold are 
exempt. So if exempt property under insurance is burned, the 
insurance money is generally held exempt. 

Illustration. — The books and instruments of a physician, them- 
selves exempt, were destroyed by fire. The property was insured. 
Creditors of the physician attempted to garnish the insurance money 
in the hands of the insurance company. The attempt failed. The in- 
surance money was held to be exempt. 
Reynolds v. Hanes, 83 la., 342. 

A homestead, once acquired, remains a homestead until 
changed by the act of the homesteader. Thus, if a homestead 
be allowed to one who has a family, the death or removal or 
abandonment of the man by his family will not cause loss of 
the homestead exemption. 

The time, talents and industry of a debtor are at his own 
disposal. He may sell them or give them away. His creditors 
can lay no claim to them. He may give them to his wife as 
well as to another. If his wife has a business, he may manage 
it for her with or without compensation. The fact that his 
services increase the value of his wife's property .will not give 
his creditors the right to levy upon that property. 

Illustration. — Mrs. Kaiser established a sure at Madison, Wis., 
known as the "Fair" store. She employed her husband to run this 
store at a small salary. Creditors levied upon the store property 
on the theory that Mr. Kaiser had an interest in it by reason of the 
fact that his labor had helped to build up the business. The court 
held that the levy could not be sustained. 
Meyers v. Kaiser, 85 Wis., 382. 



LOANS, CREDITS AND COLLECTIONS. IOQ 

354. Tender. — Mortgages and liens of all kinds are dis- 
charged by a tender of the amount due. The mortgagee, 
pledgee, or other lien holder is entitled to his principal, interest 
and lawful costs, and to nothing more. When this is properly 
offered to him, he must accept it or his lien (but not the debt 
itself) will be discharged. 

Illustration. — Tousley, being indebted to Baxter in the sum of 
$820 secured by a pledge, tended Baxter that amount. Baxter 
refused to accept. Held that the securities in Baxter's hands as a 
pledge were thereby discharged, and that Tousley was entitled to their 
return. 

Norton v. Baxter, 81 Minn., 146. 

A valid tender stops the running of interest and the incur- 
ment of further costs. 

Tender, to be valid, must be made at a proper time and 
place. If the tender is made pursuant to an obligation to pay 
money, legal tender money must be tendered. 

355. Legal Tender. — A valid tender to any amount may be 
made in United States gold coin, silver dollars, treasury notes, 
or greenbacks. Silver half dollars are legal tender in any 
amount not exceeding $10, silver in denominations of less than 
half-dollars is legal tender in any amount not exceeding $5. 
Nickel and bronze coins are legal tender in amount not exceed- 
ing twenty-five cents. When a piece of coin is so far mutilated 
that its genuineness cannot be determined, it is not legal tender. 

Illustration. — A passenger on a street car tendered the con- 
ductor a one dollar bill, having torn from its upper left-hand corner 
a portion measuring one inch by one inch and a quarter. The conductor 
ejected the passenger, and the court held that the ejection was 
justified. No legal tender of the required fare had been made. 

North Hudson County R. C. v. Anderson, 61 N. J. L., 268. 

356. Objections to Tender. — If a tender is made in some- 
thing other than money, as for example, by check, the fact 
that legal tender has not been offered will not be material if 
the tender was not refused for that reason. The person to 



170 PRACTICAL LAW. 

whom the tender is made should always state his reasons for 
rejecting it, as objections not made at the time of the tender are 
usually deemed waived. 

357. Exact Amount Must be Tendered. — To be thor- 
oughly safe, a tender should be made in legal tender money, in 
the exact amount to be paid. The money should be produced 
and submitted by the obligor, or his agent, to the obligee or 
his agent, to be counted. It is always best to make a tender in 
the presence of witnesses, as proof of the tender may become 
important. 

358. Tender Must be Kept Open for Acceptance. — 

A tender must be kept good. That is to say*, if the obligee 
changes his mind and decides to accept the amount of a rejected 
tender, the obligor must make payment, or the effect of 
the tender (at least so far as the stoppage of interest and costs 
is concerned) will be lost. 

359. Tender Admits Debt. — By making a tender, the obli- 
gee admits indebtedness to the amount of the tender. If it is 
afterwards shown that the amount tendered was insufficient to 
extinguish the whole obligation then due, the tender will be 
treated as ineffectual. But the obligator cannot be afterwards 
permitted to deny that he owes the amount which he has ten- 
dered. 

360. Payment. — Since payment is merely an accepted ten- 
der, it follows that payment discharges all liens. In addition to 
discharging the liens, it cancels the indebtedness. 

When full payment is made, the payor should require sur- 
render of the obligation paid and release of all securities col- 
lateral thereto. This is his right and he should insist upon it. 
But he cannot insist upon the payee giving him a written 
receipt, unless the payee has contracted to do so. 

If a written receipt is given, stating that the maker thereof 
has received payment "in full of all demands," it will be prima 
facie proof of that fact. But even a receipt in full may be con- 
tradicted by verbal testimony. 



LOANS, CREDITS AND COLLECTIONS. 171 

361. Payment to Wrong Person. — One who pays an 
ordinary debt without notice that it has been assigned, is re- 
leased. For this reason, the assignee of an account or other 
non-negotiable obligation should invariably promptly notify the 
debtor of such assignment. If, after such notice, the debtor 
pays the assignor, he is not released thereby, but is still bound 
to make payment to the assignee. 

But one who pays the amount of a negotiable instrument 
to a person who does not produce and surrender up the instru- 
ment paid, may be held to pay the amount over again to a 
transferee who is a holder in due course. For this reason, 
when a note or bill has been lost, payment thereof cannot be 
legally demanded without at the same time offering to indem- 
nify the payor against further payment or expense by reason 
of the lost instrument. 

362. Accepting Notes, Checks and Orders in Payment. 

Accepting the note of, or an order upon, a third person is not 
payment of a debt in the absence of an express and definite 
agreement that such note or order shall be accepted as payment. 
Payment made by issuing a worthless check, or a check 
which becomes worthless before it can be presented for pay- 
ment in the usual course of business IS XO PAYMENT. 

Illustration. — A gave a check to B drawn upon C. B sent A 
a receipt, and without delay sent the check in the usual manner for 
collection. At the time of presentation of the check C was insolvent. 
Held, that A's debt to B was not discharged. 

Thomas v. Westchester Count}*, 115 X. Y., 47. 

363. Voluntary Payment. — One who pays the debt of 
another cannot recover from the debtor, unless such payment 
was made by the debtor's request. Such payment extinguishes 
the debt but it leaves the payor without remedy. The proper 
course, when paying the debt of another, is to take an assign- 
ment in writing of such debt. When this is done the payor may 
enforce his demand against the debtor to the same extent that 
the assignor could have enforced it. 



172 PRACTICAL LAW. 

364. Compromise. — When a check is sent, accompanied by 
a letter, explaining that the check is tendered in settlement of a 
claim which is unliquidated or in dispute, acceptance of the 
check and the use of the proceeds will discharge the claim. 

Illustration. — A owed a bill for medical services charged by the 
physician at $670. This amount had not been agreed upon. The debtor 
sent the physician a check for $400 accompanied by a letter explaining 
that the check was tendered as payment in full. The physician accepted 
and cashed the check and afterwards brought suit for the difference. 
Held, that he could not recover. By accepting the check he was bound 
by the terms on which it was tendered. 
Fuller v. Kemp, 138 N. Y., 231. 



365. Accord and Satisfaction.— An agreement to accept 
a smaller sum of money as full payment of a liquidated and 
undisputed larger sum, when without consideration, is void. 
But any benefit or legal possibility of benefit, or any other con- 
sideration for the agreement, however slight, will support it. 
If the debtor does something other than that which he was 
bound to do by the original contract, whereby an advantage 
accrues to the obligor, the agreement will be sustained. 

Illustration. — Parties owed $7,714.37 on unsecured accounts. 
Their creditor agreed to accept in payment, notes to the amount of 
$3,462.24 secured by a chattel mortgage. When the latter sum had 
been paid, the creditor brought suit to recover the difference between 
the amount paid and $7,714.37, claiming that his agreement to receive 
the smaller sum in payment of the larger was without consideration 
and void. The court held that the giving of negotiable notes secured 
by a chattel mortgage in payment of the larger, unsecured book account 
was a good consideration, and that the account was thereby paid in 
full. 

Jaffray v. Davis, 124 N. Y., 164. 



366. Application of Payments.— When a debtor, having 
several debts due to the same obligee, makes a payment, he has 
the right to»designate upon which debt he will have the payment 
applied. He may apply it upon a secured debt, although he 
may have others due that are unsecured. 



LOANS, CREDITS AND COLLECTIONS. 173 

If the debtor does not specify upon which of several debts 
he desires to have a payment applied, the creditor is at liberty 
to apply the payment as he pleases. 

A creditor need not accept less than the full amount of a 
debt that is due, unless he so elects. 

A creditor, if the debtor makes no objection, may apply 
payments upon unsecured debts when there are secured debts 
due. 

367. Collection of Debts.— From time to time various 
schemes for the coercion of debtors into payment of debts are 
brought forward, and business men are led to subscribe to them. 
A word of warning on this subject may not be amiss. The 
collector becomes the agent of the creditor. His acts are, in 
effect, the acts of the creditor. If he resorts to blackmail or 
libel, the creditor who has authorized the collector to apply 
such methods will be responsible. All schemes for collection, 
unless approved by competent legal counsel, are to be avoided 
as dangerous. 

Illustration. — Armstrong was a member of the firm of Kabrich 
& Co. who claimed that Mrs. Mary Vincil owed them a bill of $3.70 
and interest. Armstrong placed this bill in the hands of a Collecting 
Agency in Chicago. Among other communications, this agency sent 
Mrs. Vincil one contained in an envelope having in its upper left hand 
corner, in heavy black type, the words ''BAD DEBT Collecting 
Agency." Of this the Supreme Court of Missouri said: "Was the 
sending of this envelope with these indorsements on it the publishing 
of a libel . . . ? We are clearly of the opinion that it was." Armstrong 
was fined $500. 

State v. Armstrong, 106 Mo., 395. 

368. Procedure in Collection. — One who holds an unse- 
cured claim for collection should, in general, proceed substan- 
tially as follows : 

I. Ascertain as fully as possible the financial condition, 
resources and liabilities of the debtor. 

II. Present the claim and attempt to procure payment of all 
or at least a part immediately in money. 

III. If payment is refused or delayed, attempt to procure a 
mortgage, pledge or approved note as security. 



174 PRACTICAL LAW. 

IV. If security is refused and a crisis in the debtor's affairs 
seems imminent, prepare to make an attachment levy, if there 
is sufficient unincumbered property subject to levy available, 
or if the debtor has friends who are likely to aid him. This may 
be done by quietly issuing attachment process and by then 
going with the officer to the debtor and telling him what is to 
be done if settlement is not made, pointing out to him that the 
making of a levy will precipitate a crisis in his affairs; that his 
credit will suffer and that other creditors may petition him into 
bankruptcy. Induce him, if possible, to give a note signed 
by an approved surety or guarantor. For, if other creditors 
should afterwards, within four months, petition the debtor into 
bankruptcy, any preference gained by way of mortgage, pledge 
or transfer of property would probably be "set aside, and the 
holder of such security would be in no better position than other 
creditors. But if a note with a proper surety or guarantor is 
taken, the bankruptcy of the debtor will not discharge the 
surety or guarantor and the claim will therefore remain col- 
lectible in full. 

If the debtor is without unincumbered assets, and if he has 
no friend who is likely to become his surety or guarantor, the 
only thing to be done is to make persistent presentation of the 
claim. Call upon him at stated, times. Remember that gentle- 
manly treatment, firmness and. punctuality will accomplish 
more, as a rule, than bluff and bluster. No matter iiow worth- 
less the claim, never let the debtor know that you think it is 
worthless. Give him to understand that you regard him as a 
man of honor who will pay as a matter of course. This appar- 
ent opinion will often prove so refreshing to a debtor harassed 
by less tactful collectors, that he will pay for the sake of 
retaining your good opinion, while at the same time he will 
dismiss others with scant courtesy and without paying a cent. 

If, after exhausting every means, you are unable to procure 
any payment, induce the debtor to give you his note. Endeavor 
to have him keep the interest upon this obligation from falling 
into arrears. Keep the obligation in force. However improb- 
able it may seem at the present moment, remember that the 
debtor may some day, by his own efforts, or by some freak of 
fortune, be able to pay. 



LOANS, CREDITS AND COLLECTIONS. 175 

If the debtor refuses to give even an unsecured note, it is 
usually the best practise to place the matter in court and 
procure judgment. Keep the judgment renewed. It may 
prove worthless at the very end, but the policy is correct, and 
you will gain by it far oftener than you will lose. 

369. Collection of "Outlawed" Claims. — All states have 
statutes of limitation which require a claimant to commence his 
action within a fixed period, or be forever barred from legal 
remedy. A barred claim is, in common parlance, "outlawed." 

It is true that statutes of limitation often work a hardship 
to creditors, but the absence of such statutes gave rise to vastly 
greater evils. Before such statues were enacted, parties might, 
and often did, wait until witnesses were scattered or dead, 
papers lost or destroyed, circumstances forgotten and condi- 
tions changed, and then proceed to enforce claims against 
which successful defense might have been made had the action 
been brought within a reasonable time after the cause of action 
arose. 

The notion that statutes of limitation are intended for the 
benefit of the dishonest is erroneous. They are intended to 
keep stale claims out of the courts. The law is intended to aid 
the diligent, not the indifferent. An outlawed claim is usually 
the result of neglect. 

That a claim is barred by limitation is not conclusive proof 
that it is worthless. There is a saying that "an honest man's 
debt never outlaws." Moreover, many debtors are too proud 
to take advantage of the law, while others are too ignorant to 
invoke it. Upon finding that a claim is barred by limitation, 
the creditor should take tactful steps to have the debtor re- 
instate it. 

370. When Does the Statute Become Operative? — 

The period of limitation upon a note dates from the time of 
the last payment of principal or interest thereupon. If no pay- 
ments have been made, it is computed from the time of 
maturity. Thus, a note given January 2, 1906, due one year 
after date would, in the absence of payments or a new promise 



176 PRACTICAL LAW. 

in writing, be barred on the last moment of January 2, 1912, 
in a state in which the period of limitation on notes is six years, 
without grace. Where grace is allowed, it is to be added to 
the period of the note, and extends the period of limitation to 
that extent. 

On items of running accounts upon which there have been 
no payments, the limitation runs from the date of each item. 
Thus part of such an account may be in force and part of it 
outlawed. Upon an account stated (i. e., where the parties have 
had a settlement and have agreed upon a balance struck) the 
statute runs from the date of the settlement. Upon a mutual 
open account made up of charges and credits, the statute runs 
from the date of the last item, whether it be a charge or a 
credit. These are general rules, subject to variation by statute. 

371. Suspension of Statute. — It is usually held that the 
running of the statute of limitations is suspended during the 
absence of the debtor from the state where the debt is payable. 

Thus, if one owing a debt having three years to run before 
outlawry were to leave the state and remain absent ten years 
and then return, the debt would still have three years to run 
before becoming barred. 

When a debtor is followed to another state and is sued 
there, the limitation law of the state where suit is brought 
governs. For example, in Wyoming the limitation upon 
accounts is eight years ; in California it is two years. Thus, a 
Wyoming account sued in California, would be held barred 
in the latter state, although having six more years to run in 
Wyoming. On the other hand, were a California debtor to be 
sued in Wyoming on a debt barred in California by reason of 
being more than two years past due, the courts of Wyoming 
would enforce the claim if suit were brought in that state at 
any time within eight years after the debt matured. 

372. Limitation Withdraws Remedy. — The statute of 
limitations does not invalidate the debt; it merely withdraws 
the tardy claimant's remedy. If the debtor does not insist upon 
the benefit of the statute, judgment will be entered against him 



LOANS, CREDITS AXD COLLECTIOXS. 



177 



precisely as though the claim were not outlawed. It is not 
unusual for debtors, through ignorance or indifference,, to permit 
creditors to recover judgment upon outlawed claims. Such 
debtors are frequently considerably surprised to learn, after- 
wards, and when the time for a new trial or an appeal has 
expired, that such judgments are valid and enforcible. 

373- Renewal. — A new, written promise to pay, or a partial 
payment of an outlawed debt renews the obligation. The 
renewed obligation is upon the same footing as an original 
indebtedness. 

A new promise to pay, or a partial payment made by one of 
several joint debtors renews the indebtedness as to him only, 
and not as to joint debtors who do not join in the act of 
renewal. 

Illustration.— Shingle and Altman were jointly indebted on a 
note. Shingle made several payments of interest, but finally defaulted. 
Action was brought upon the note, and Altman, who had made no 
payments, claimed that while the note was in force as to Shingle on 
account of the renewing power of payments, the obligation was not 
in force as to him, Altman. the statutory time having expired. The 
court so held. 

Cowhick v. Shingle (Wyoming), 25 L. R. A., 608. 

374. Unauthorized Application No Renewal. — When 
one of several debts owed to the same creditor is barred by 
limitation, and the debtor makes a payment without directing 
how it shall be applied, the creditor may apply the amount of 
the payment upon the outlawed claim, but such application 
will not renew the remainder of such claim. 

Illustration. — Sawyer owed Blake a store account, barred by 
limitation, and a note still unbarred. He presented a bill of $12.30 
for services, without designating how he wished it applied. Blake 
applied the amount on the outlawed account. Held that Blake had a 
right to do this, but that such application did not renew the barred 
claim. 

Blake v. Sawyer, 83 Maine, 129. 

375. Written Acknowledgment.— A written acknowledg- 
ment to take an instrument out of the statute of frauds must 

12 



178 PRACTICAL LAW. 

be distinct and unambiguous. When there is more than one 
debt owing to the promisee, the debt must be sufficiently 
described to be identified. If there is but one debt, that fact 
may afterwards be shown for the purpose of establishing that 
there was only one debt to which the promise could relate. 

Illustration. — A debtor owed one person on six acceptances. 
He wrote promising to pay as soon as possible. He did not specify 
which obligation or obligations he meant to pay. Held, the writing 
did not renew any of the obligations. 
Opp v. Wack, 52 Ark., 288. 

376. Assignments for Benefit of Creditors. — The com- 
mon law, and the statutes of most states, permit debtors to 
assign all of their property to a trustee to be sold by the trustee 
for the benefit of all creditors. In some states, the assignor is 
permitted to select and prefer certain creditors. In other 
states this right is denied. When an assignment is made with- 
out preferences, it is more advantageous than bankruptcy pro- 
ceedings, so far as creditors are concerned, as under an assign- 
ment the cost of administering the estate is less than in bank- 
ruptcy. But from the debtor's standpoint, bankruptcy is often 
preferable, as the bankrupt is released from practically all 
further liabilities, whether his estate pays his creditors fully or 
only in part. In many states an assignor, who makes assign- 
ment for the benefit of his creditors, remains liable for the 
deficit if his estate fails to pay his creditors in full. 

The duty of the assignee is to sell the assigned property 
and make ratable, lawful distribution of the proceeds to the 
creditors who prove their claims. 

377* Bankruptcy. — Bankruptcy is of two kinds, Voluntary 
and Involuntary. Voluntary Bankruptcy is that which results 
from the debtor's own petition. Involuntary Bankruptcy is 
that which results from the petition of persons other than the 
debtor. 

378. Who May Become Bankrupts. — Any natural per- 
son who owes debts may become a voluntary bankrupt. A cor- 
poration cannot become a voluntary bankrupt. 



LOANS, CREDITS AND COLLECTIONS. 1 79 

Any natural person (except a wage earner, or a person 
engaged chiefly in farming or in tillage of the soil) owing 
debts to the amount of $1,000 or over, may be adjudged an 
involuntary bankrupt. 

An unincorporated company, or bank, or any corporation 
engaged principally in manufacturing, trading, printing, pub- 
lishing, mining or mercantile pursuits, owing debts to the 
amount of one thousand dollars or over, may be adjudged an 
involuntary bankrupt. 

379. Acts of Bankruptcy. — No person, firm or corpora- 
tion can be adjudged an involuntary bankrupt without having 
first committed some act of bankruptcy. 

The following acts are designated by the law as acts of 
bankruptcy : 

(a) Having conveyed, transferred, concealed, or removed, 
or permitted to be concealed or removed, any part of his prop- 
erty with intent to hinder, delay or defraud his creditors, or 
any of them ; or 

(b) Having transferred, while insolvent, any portion of 
his property to one or more of his creditors with intent to pre- 
fer such creditors over his other creditors ; or 

(c) Having suffered or permitted, while insolvent, any 
creditor to obtain a preference through legal proceedings, 
and not having at least five days before a sale or final disposi- 
tion of any property affected by such preference vacated or 
discharged such preference ; or 

(d) Having made a general assignment for the benefit of 
his creditors or, being insolvent, having applied for a receiver 
or trustee for his property, or when, because of insolvency, a 
receiver or trustee has been put in charge of the debtor's prop- 
erty; or 

(e) Having admitted in writing his inability to pay his 
debts and his willingness to be adjudged a bankrupt on that 
ground. 

A person, firm or corporation capable of bankruptcy may be 
adjudged a bankrupt if shown to have performed an act of 



l8o PRACTICAL LAW. 

bankruptcy, at any time within four months preceding the riling 
of the petition for such adjudication. 

380. Insolvency. — When an act of bankruptcy involves 
insolvency, the insolvency must be proved. A debtor is deemed 
insolvent when his whole property shall not, at a fair valua- 
tion, be sufficient in amount to pay his debts. The term ''fair 
valuation" means present market value. Goods on hand are 
to be inventoried at their present worth, exclusive of prospect- 
ive profits. Bills and accounts receivable are to be taken at 
their actual, not their nominal, value. Property conveyed to 
others, or wrongfully concealed or removed, is not added to 
the inventory. 

When a bankruptcy proceeding depends upon the insolvency 
of the defendant, the proceeding must fail if insolvency is not 
shown. 

381. Discharge. — In consideration of surrender of all of his 

property not exempt from execution, the court has authority 
to discharge the bankrupt from all of his provable debts, except, 

(a) Taxes; 

(b) Alimony; 

(c) Liabilities arising through fraud, embezzlement, mis- 
appropriation, or defalcation while acting as an officer or in 
any fiduciary capacity; 

(d) Liabilities arising through false representations, or for 
wilful or malicious injuries to the person or property of 
another, or for the maintenance and support of his wife and 
child. 

(e) Claims which have not been duly scheduled in time for 
proof and allowance, with the name of the creditor, if known 
to the bankrupt, unless such creditor had notice or actual 
knowledge of the proceedings in bankruptcy. 

382. Debts First Paid. — Before the general creditors can 
be paid, the following debts must be defrayed out of the pro- 
ceeds of the bankrupt's estate : 



LOANS, CREDITS AND COLLECTIONS. l8l 

(a) Taxes; 

(b) Cost of preserving the bankrupt's estate; 

(c) Fees and costs of administration; 

(d) Wages of workmen, clerks and servants, not exceed- 
ing $300 each, earned within three months before the proceed- 
ing was commenced ; 

(e) Bona fide secured claims and claims having lawful 
priority. 

Holders of claims not falling within the classes above 
enumerated will be paid, without preference and all alike, such 
per centage of their claims as the residue of the bankrupt's net 
estate affords. 

383. Uses of Bankruptcy. — Bankruptcy is commonly 
resorted to by debtors to rid themselves of an insupportable 
burden of debts. The bankrupt is enabled, by surrendering all 
of his property which might otherwise be reached by legal 
process, to obtain a new start in life, debt-free. 

Bankruptcy is used by creditors as a convenient means of 
winding up insolvent estates. It is particularly useful when 
the debtor has attempted to give preferences to favored cred- 
itors. By throwing the debtor into bankruptcy, the other 
creditors are usually able to have such preferences set aside 
and an equitable distribution made of the proceeds of the 
debtor's estate. 



Corporations* 



FORMATION, 

MANAGEMENT, 

RIGHTS OF STOCKHOLDERS, 

DISSOLUTION. 



183 



CHAPTER XXV. 



CORPORATIONS. 

384. Characteristics. — A corporation is a legal person. 
Its existence is entirely separate from that of the persons who 
own its shares and administer its business. These may die, but 
the corporation will continue unchanged. 

The corporation is not liable for the debts of its stock- 
holders, and the stockholders are not, in general, liable for the 
debts of the corporation. The corporation acts in its own 
name. By its own name it purchases and sells property, con- 
tracts and is contracted with, sues and is sued. 

Through the corporation, the savings of many are accumu- 
lated and devoted to a single enterprise. By means of the cor- 
poration, the inventor is enabled to ally his ingenuity with 
capital; the tradesman is enabled to interest his assistants in 
his business without surrendering control ; the promoters of 
great enterprises are enabled to draw together funds from 
many sources for the purpose of accomplishing a common 
object. 

It would be difficult to imagine a partnership having sev- 
eral hundred members, each with an equal voice in the manage- 
ment of the concern's affairs ; each able to bind the credit of the 
concern, and each the agent for all the others in the transac- 
tion of the firm's business. Clearly, the great undertakings 
of this country would be impossible were the conduct of busi- 
ness^conrmed to partnerships. Corporations exist of necessity. 
Corporate organizations having thousands of stockholders are 
not uncommon. With the funds drawn together from a vast 
number of contributors, enterprises of magnitude are made 
possible. 

184 



CORPORATIONS. 185 

385. Corporations Compared with Partnerships. — 

As has been seen, partners are necessarily liable for all of 
the debts of the firm ; each has an equal voice in the business 
and is the authorized agent of all the others. If a partner dies, 
the firm is thereby dissolved. Its affairs must be closed up. 
The good will built up through trade and advertising is thereby 
lost. If a partner sells his interest, a like result usually 
occurs. Moreover, money cannot be borrowed upon one's 
interest in a partnership, nor is such an interest capable of 
ready sale. 

In a corporation the situation is changed. The affairs of 
the concern are administered by a selected body of men, called 
directors, who act within fixed limitations. The credit of the 
corporation can be bound only by compliance with its rules. 
The individual members are not liable for the debts of the 
concern, except in rare instances. If the corporate enterprise 
fails, the individual credit of its stockholders is not involved. 
The death of a member does not affect the organization. 
His heirs stand in his stead. 

Money may be borrowed upon certificates of corporate 
stock, and this in no way reflects upon the credit of the corpor- 
ation. A stockholder may sell and transfer his shares without 
permission of the other shareholders, and the corporation goes 
on unchanged. The amount of money which may be placed at 
the command of an incorporated company is limited only by 
the size and soundness of the enterprise. Practically all of the 
great undertakings of this country are now carried on by 
means of corporations. 

386. Charter. — The powers of a corporation are derived 
from the state, and are expressed in the corporate charter. 
Corporations are now usually organized under permission con- 
ferred by general laws. Each state has statutes under which 
corporations may be formed. While these statutes differ widely 
in scope and requirements, their purposes are similar. Such 
laws usually provide that any number of persons, not less 
than three, may form a corporation by signing and acknowl- 



l86 PRACTICAL LAW. 

edging before some officer authorized to take acknowledgments, 
articles of association in writing, specifying, 

(a) The name of the corporation, 

(b) The amount of its capital stock and the number of 
shares into which the same is divided, 

(c) The place at which the business of the corporation is 
to be conducted, 

(d) The purpose or purposes for which the corporation is 
formed, 

(e) The amount of capital stock subscribed, and the pro- 
portion thereof paid in at the time of organization, 

(f) The duration of the corporation, which in many states 
is unlimited, 

(g) The names and addresses of the incorporators, and 
the number of shares of stock subscribed for by each. 

387. (a) Name. — The name assumed by a corporation 
must not conflict with the name of another existing company 
engaged in the same or a similar line of business. The use of 
a name which does so conflict may be enjoined by. the courts. 

Illustration. — One Isaac W. Lamb was instrumental in forming a 
corporation for the manufacture of knit-goods, principally gloves and 
mittens, under the name Lamb Knit-Goods Company. Becoming dis- 
satisfied, Lamb afterwards withdrew from this corporation, removed 
to another town and in conjunction with others, formed a new corpor- 
ation for the same general purpose, under the name Lamb Glove & 
Mitten Company. The court restrained the latter company from using 
the name Lamb Glove & Mitten Company, that name being held to 
conflict with the name of the company first formed. 

Lamb Knit-Goods Co. v. Lamb Glove & Mitten Co., 120 Mich., 
159. 

388. (b) Capital Stock and Shares. — The capital stock 
of a corporation is the total amount which the company is able 
to obtain by the sale of its stock at par. 

The equal parts into which the capital stock is divided are 
called shares.' 

Shares are "fully paid and non-assessable" when par value 
has been paid to the corporation for them in cash or in property. 



CORPORATIONS. 187 

Shares become "treasury stock" when they have been once 
issued by the company for par value and have been after- 
wards reacquired by the company through gift or purchase. 

When shares are originally sold by the company for less 
than par value they remain subject to assessment for an 
amount equaling the difference between the price paid for 
them and par. Thus, if shares are originally sold by the cor- 
poration at 40 cents on the dollar of face value, they remain 
subject to an assessment of 60 cents on the dollar, and this 
assessment may be enforced by creditors of the company. In 
other words, it is the right of creditors of a corporation to 
have all shares issued by the company represent dollar for 
dollar, cash or property actually paid in to the company. 

But when stock has been once issued for par value and is 
afterwards reacquired by the company, the company may 
reissue it at any price fixed by the board of directors, and such 
reissued stock, though sold at less than par, having been once 
fully paid, remains non-assessable. In other words, fully paid 
"treasury stock" is non-assessable, no matter at what price it 
is issued. 

Shares usually have a face value of from $1 to $100. 
When the- stock is intended to be distributed among a large 
number of small investors, the shares of the lower face value 
are preferable. But when the investment is to be made by 
people of considerable means, or by a few stockholders, the 
larger par value should be adopted. 

389. Payment for Stock. — Stock may be paid for in cash 
or in property. For this purpose, the term 'property" includes 
lands, chattels, leases, good will, trade marks, patents, copy- 
rights and personal services. 

In many states the judgment of the directors is, in the 
absence of fraud, taken as conclusive of the value of property 
accepted by the corporation in payment for shares. Since the 
value of many kinds of property (as, for example, patents, 
trade marks and good will) is largely a matter of opinion, it is 
not unusual to find all or a large part of the capital stock of a 
corporation originally paid up by sale to the company of prop- 



l88 PRACTICAL LAW. 

erty at an inflated valuation. When stock is issued for prop- 
erty at an overvaluation, the stock is said to be "watered." 

390. (c) Location. — The articles joi association usually 
set forth the location of the principal place of business of the 
company. In most cases this must be within the state where 
the corporation is chartered. In ordinary companies formed 
for trading and manufacturing, it is best to obtain a charter in 
the state where the company's principal operations are to be 
conducted. The reason for this is that domestic corporations 
are usually more favored than foreign corporations by state 
legislation. Almost all states impose restrictions upon foreign 
corporations, and it is within the power of a state to exclude 
any foreign corporation altogether, provided such exclusion 
does not interfere with inter-state commerce. 

391. (d) Powers and Purposes. — The purposes of a cor- 
poration are the objects for which it is created. Its powers 
are the means by which those objects are attained. In some 
states (notably New Jersey, Maine and Delaware) corpora- 
tions are permitted an almost unlimited range of purposes, 
although their powers are but slightly greater than the powers 
of corporations organized in less liberal states. 

A corporation has no powers except those conferred upon it 
by its charter, and such implied powers are necessary to make 
effective the powers expressly conferred. Thus, a corporation 
having express power to conduct manufacturing, would have 
implied power to acquire land and to build a factory thereupon. 
But a manufacturing corporation would not have implied 
power to organize subsidiary corporations in other states. 

When a corporation performs an act unauthorized by its 
charter, the act is said to be ultra viras (beyond power). But 
the corporation will not be permitted to accept the benefits of 
an ultra viras act and at the same time to shield itself from 
liability by a claim that the act was unauthorized. 

The ordinary powers of a corporation are to contract and to 
be contracted with, to purchase, hold and deal in property, to 



CORPORATIONS. 180. 

sue and to be sued, but all of these acts are to be done within 
the scope of the corporate purposes and pursuant to its charter 
and by-laws. 

392. (e) Subscriptions and Payment Thereof- — 

Articles of association usually include a statement of the num- 
ber of shares subscribed by each of the signers thereof. When 
signed, the articles of association form a written subscription 
on the part of each incorporator for the number of shares 
written opposite his name. Thus all incorporators become 
stockholders from the moment of signing the articles. This 
subscription interest entitles them to vote at all meetings of the 
stockholders. The interest is assignable, and may be trans- 
ferred to another before any stock certificate has been issued, 
and the transferee will substitute to all the rights of the original 
subscriber. 

Subscriptions may be made apart from the articles of asso- 
ciation, either before or after the company is incorporated. A 
subscription made before incorporation is a mere offer and 
may be accepted or rejected by the company after incorpora- 
tion. 

Payments upon subscriptions are usually called in by the 
board of directors from time to time as the funds are needed. 
Payment of a valid subscription, upon which default has been 
made by the subscriber, may be enforced by suit. 

393. (f) Duration. — In some states perpetual charters are 
granted. In other states corporate existence is limited to a 
term of years. It is usually provided, however, that when the 
corporation has reached the fixed limit, it may be continued by 
reorganization without liquidation. 

394* (g) Incorporators. — The persons who join in form- 
ing a corporation are called "Incorporators." Since articles 
of association are a contract between the signers and the cor- 
poration formed, it follows that the incorporators should be 
persons capable of binding themselves by contract. 



190 PRACTICAL LAW. 

395. Recording Articles of Association. — When the arti- 
cles of association have been properly filed and recorded as 
required by law, the organization becomes a corporation de 
jure. That is to say, it is a corporation as to all the world. 
If, through any neglect, technical compliance with the law is 
omitted, the organization, instead of becoming a corporation 
de jure, becomes a corporation de facto. That is to say, it is 
a corporation as to the whole world, except the state under 
whose laws it is created. The state alone, and not private 
individuals, can take advantage of the fact that the corpora- 
tion is improperly formed. 

Where the purposes stated in the articles of association of 
a corporation are entirely foreign to the law under which it 
assumes to exist, or where incorporation is attempted under 
a void law, no corporation, either de jure or de facto, results. 
In such case the incorporators become copartners and remain 
liable as such. 

Illustration. — Walker, Hopkins & Co. attempted to incorporate 
under an act of the legislature of Michigan. The act was afterwards 
held unconstitutional and void. In the meantime Walker, Hopkins & 
Co. had contracted debts as a corporation.. It was held that they were 
liable for payment of these debts as co-partners. 
Eaton v. Walker, 76 Mich., 579. 

When a corporation is organized under a general law, the 
statute under which it is formed, together with its articles of 
association, constitute its charter. One who would inquire into 
the authority of a corporation must seek them in these instru- 
ments. These are the measure of the corporation's powers. 

396. By-Laws. — Next in authority after the charter are 
the rules of corporate conduct formulated by the stockholders. 
These rules are called By-Laws. When reasonable, they are 
binding upon all members of the corporation, and upon third 
parties who have notice of their provisions. But they are 
not binding upon third parties without notice. An unreason- 
able by-law is void. 



CORPORATIONS. 191 

If by-laws are in conflict with the terms of the charter, they 
will be void to that extent. The charter is paramount. 

The by-laws usually fix the dates for the holding of meet- 
ings of the stockholders and of the board of directors ; define 
the powers and duties of the officers, of the company ; provide 
the date of termination of the fiscal year, and the time for the 
payment of dividends. They should also in every case provide 
the means for their own amendment, unless provision there- 
for is made by the statute. 

The making of by-laws is one of the principal rights of the 
stockholders. Under the laws of some states, this right may 
be delegated to the directors. When both the directors and 
the stockholders have the right to make by-laws, the by-laws 
made by the stockholders will prevail in case of conflict. 

The following set of by-laws will afford the student a gen- 
eral view of the subjects usually covered in such instruments :— 

BY-LAWS 

OF 

THE AMERICAN WHEEL MANUFACTURING CO. 



% 
1. ANNUAL MEETING. The annual meeting of the stock- 
holders of this corporation shall be held on the second Tuesday in the 
month of January in each year, beginning with the year A. D. 1907, 
and at the hour of 8 o'clock p. m. at the place of business of said cor- 
poration in the city of Detroit, Michigan, when the stockholders shall 
elect by ballot a board of nine directors, who shall each be stockholders 
of said corporation, and who shall be elected for a term of one year, 
and to hold such office until their successors shall have duly been 
elected. 

2. QUORUM. A quorum of the stockholders shall consist of the 
holders of a majority of the capital stock of this corporation, at the 
time outstanding, being present in person or by proxy. 

3. VOTES. Each share of stock of this corporation issued and 
outstanding shall entitle the holder thereof, or his lawful representa- 
tive, to cast one vote on all questions coming before any meeting of 
the stockholders. 

4. PROXIES. Stock of this corporation may be voted upon by 
the holder thereof, either in person or by proxy. Proxies, to be operat- 
ive, must be in writing, signed by the principal and filed with the secretary 
of this corporation. 



192 PRACTICAL LAW. 

5. NOTICE OF ANNUAL MEETING. Notice of the time and 
place of holding the annual meeting shall be sent by the secretary of 
this corporation to each stockholder annually, by depositing such 
notice in the mail, with postage fully prepaid, addressed to the last 
address of such stockholder appearing upon the books of the corpora- 
tion; and such notice shall be so mailed at least five days prior to the 
holding of such meeting. 

6. SPECIAL MEETINGS OF THE STOCKHOLDERS. 
Special meetings of the stockholders may be called by the president 
of this corporation, or by a majority of the board of directors, or by 
the holders of a majority of the capital stock outstanding, by filing 
with the secretary of this corporation a written call for such meeting, 
signed by the persons calling the same, which call may be in the 
following form: — 

TO THE STOCKHOLDERS OF THE AMERICAN WHEEL MAN- 
UFACTURING COMPANY: 

Please take notice that a special meeting of the stock- 
holders of the above named company will be held at 

'. , in the city of Detroit, Wayne 

County, Michigan, on the day of 

, A. D. 19 , at the hour of 

o'clock in the , for the purpose of 

considering^nd taking action upon 

(Here insert the object of the meeting.) 
Dated 



(Here affix signatures of the persons by 
whom the meeting is called.) 

And upon receipt of such call, the secretary shall cause copies thereof 
to be made, and shall mail one copy to each stockholder, in the same 
manner as is hereinbefore provided for the mailing of notices of the 
annual meeting; but it is expressly provided that if such secretary 
shall neglect or refuse to procure and mail such copies of said call, 
then and in that event the persons by whom the call is made may 
perform the duties of the secretary in that respect and with like 
effect. 

7. MEETINGS OF THE BOARD OF DIRECTORS. Regular 
meetings of the board of directors shall be held at the office of this 
corporation on the first Tuesday in each month, at the hour of eight 
o'clock p. m. Special meetings of the board of directors may be held 
at the call of the president, or of any two members of the board of 
directors, as he or they shall deem necessary. 



CORPORATIONS. 1 93 

8. QUORUM OF DIRECTORS. A majority of the board of 
directors properly convened, shall constitute a quorum. 

9. POWERS OF BOARD OF DIRECTORS. The stock, 
property, affairs and business of this corporation shall be supervised, 
controlled and managed by the Board of Directors thereof, who shall 
have power to delegate their executive authority to such agent or 
agents as they may from time to time appoint. They shall also have 
full power to fix, from time to time, the salaries of all officers of the 
corporation. 

10. OFFICERS. As soon as may be after the annual election of 
directors in each year, the board of directors elected thereat shall con- 
vene, and shall elect from among its members a president, a vice-presi- 
dent, a secretary and a treasurer. The board may also appoint such 
other officers and agents, to act by and under the direction and control 
of the board of directors, as it may see fit. 

11. PRESIDENT. The president shall preside over all meet- 
ings of the stockholders and of the board of directors and of all stand- 
ing committees. He shall be custodian of the bond given by the treas- 
urer ; he shall affix his official signature to all stock certificates, convey- 
ances and transfers of corporate property, and to all other instruments 
whereunto such signature shall be requisite. 

12. VICE-PRESIDENT. The vice-president shall have and exer- 
cise all of the powers and duties of the president during the absence or 
disability of the president. 

13. SECRETARY. The secretary shall make and preserve in 
books belonging to the corporation, records of all meetings of the stock- 
holders and of the board of directors. He shall attend to the prepara- 
tion and mailing of notices of all meetings whereof notice by mail is 
herein required. He shall affix his official signature to all stock certifi- 
cates issued by this corporation, and to such other instruments as may 
require such signature. He shall deliver to his successor in office all cor- 
porate property that shall be in his possession at the end of his term of 
office, and shall perform all other duties required of him by the board 
of directors. 

14. TREASURER. The treasurer shall correctly keep all 
accounts of the corporation in books belonging to the corporation. He 
shall make and preserve full and accurate records of all receipts and 
disbursements thereof, and shall collect, and deposit all moneys of the 
corporation in such depository as shall be selected, from time to time, 
by the board of directors. He shall disburse the funds of the corpora- 
tion in payment of corporate obligations, approved by the board of di- 
rectors, taking proper vouchers therefor. When requested so to do by 
the board of directors, he shall make and file with the president of this 
corporation a bond in such amount and with such surety or sureties as 
shall be approved by the board of directors, conditioned for the faithful 

13 



194 PRACTICAL LAW. 

performance of the duties of his office. Provided, that if a surety com- 
pany bond shall be required by the board of directors, this corporation 
shall bear the reasonable cost thereof. 

The treasurer shall receive and safely keep, and shall promptly 
deliver over to his successor in office, the corporate seal, all documents 
and other instruments in writing belonging to the corporation. He 
shall also perform such other duties as shall be delegated to him by 
the board of directors. 

15. JOINDER OF OFFICES. Any two offices of this cor- 
poration may be held by one and the same person. 

16. VACANCIES. In case of vacancy occurring in any office, 
or upon the board of directors, such vacancy may be rilled by appoint- 
ment of any stockholder of this corporation thereto, which appoint- 
ment shall be made by a quorum of the board of directors, duly con- 
vened. 

17. CHECKS, DRAFTS AND ORDERS. All checks, drafts 
and orders for payment of money shall be signed by the treasurer. 

18. PROMISSORY NOTES. All promissory notes made by 
this corporation shall be executed in the corporate name by the presi- 
dent and treasurer thereof. 

19. CORPORATE SEAL. This corporation shall have a corpor- 
ate seal and the treasurer shall be custodian thereof, with full power to 
affix the same to such instruments as shall require its use, either by 
law, by resolution or by custom. 

20. FISCAL YEAR. The fiscal year of this corporation shall 
end on the 31st day of December in each year hereafter, beginning with 
the year 1906. 

21. TRANSFERS OF STOCK. All transfers of stock of this 
corporation shall be made upon the corporate books by the holder of 
the shares in person, or by attorney, and no transfer shall be deemed 
complete and binding upon the company until the same shall have been 
so made, and until the certificate or certificates thereof shall have 
been surrendered to the company, properly indorsed, and a new certi- 
ficate or certificates shall have been issued instead thereof. 

22. DIVIDENDS. Dividends, when earned and declared, shall 
be payable on the first Monday in February in each year. Dividends 
at any time payable to any person who is then indebted to this corpora- 
tion, may be applied upon such person's said indebtedness in reduction 
thereof to such extent as the board of directors shall by resolution 
determine. 

23. AMENDMENTS. The stockholders of this corporation 
may, by a two-thirds majority vote of a quorum present at any annual 
meeting, or at any special meeting having that purpose mentioned in 
the notice thereof as one of said meeting's objects, alter, amend or 
repeal these by-laws, or any of them. 



CORPORATIONS. 1 95 

397. Preliminary Investigation.— Before investing, in- 
vestigate. Before becoming a stockholder in a corporation, 
one should familiarize himself with the laws under which the 
company is organized; one should examine the concern's 
articles of association and by-laws. The investor should re- 
quire and retain a financial statement of the condition of the 
company, its assets and liabilities, and should learn something 
of its history and of the capacity and integrity of its managing 
officers. Good management will make almost any business 
flourish; continued bad management will wreck the most 
promising enterprise. 

If the corporation is a new one, or one whose stock values 
are not established, the investor should assure himself that 
he is not paying for fictitious values. He should remember 
that his shares merely represent a proportionate part of the 
net assets of the concern. For example, suppose that A, B 
and C form a corporation with an authorized capital stock of 
$30,000, one half of which they pay up by selling to the com- 
pany patents of no present value. Then suppose that D buys 
the other half of the company's stock for $15,000 in money. 
The immediate result is that A, B and C together now own 
in effect, a half interest in D's $15,000 of money, while D has 
received for it, in effect, a half interest in their worthless 
patents. If the corporation were liquidated at once (supposing 
it to be without debts) the patents would sell for nothing and 
D would receive back only $7,500 upon his investment, while 
A, B and C would together receive the remainder, or $7,500. 
This shows the real standing of the parties. True, the patent 
may prove valuable, but D's cash is of fixed and certain value 
and should not have been invested without such concessions as 
would afford its investor proper remuneration for his risk. 
This inequality between money and property of unascertained 
value is often corrected by issuing a class of shares known as 
"preferred stock." 

398. Kinds of Stock. — Shares of stock are either Common 
or Preferred. 

Common Stock is without special contractual advantages. 
Preferred Stock enjoys such advantages. It is usually entitled 



I96 PRACTICAL LAW. 

to payment of dividends to a certain amount before the common 
stock can participate in the corporation's profits. Fref erred 
stock may be either cumulative or non-cumulative. When 
cumulative, it must be paid the amount of all passed dividends 
whenever there are sufficient declared net profits to pay them, 
and before any dividends can be paid upon the common stock. 
When preferred stock is non-cumulative, a dividend passed 
is lost. There is then no obligation to make good the passed 
dividend out of future profits. 

The preferences accorded to preferred stock are based upon 
contract between the stockholders and the corporation. The 
terms of the contract are usually printed upon the certificates 
of the preferred shares. These terms vary greatly in different 
corporations. Sometimes preferred shares are made "fully 
participating." That is, after payment of a certain per cent 
of dividends upon them, they are entitled to share with the 
common stock, without distinction, in all remaining declared 
net profits. Again, we find preferred shares made non-partici- 
pating. That is, after payment of a fixed per cent upon them 
at the dividend periods, they receive nothing more, no matter 
how great the profits of the concern. Thus, it sometimes 
happens that a company's preferred stock will be receiving 
only 6% per annum, while its common stock will be receiving, 
perhaps, 25% per annum. In that event, the common stock 
will, of course, be of greater value than the preferred. In 
general, however, the preferred stock is the more valuable. 

399. Voting Powers. — Unless otherwise provided by law, 
each share of stock entitles the holder thereof to one vote on 
all subjects coming before any meeting of the stockholders. 
In the absence of contrary provisions, there is no distinction 
between the voting power of common shares and of preferred 
shares. It is lawful, in the absence of a statute to the con- 
trary, to provide that preferred stock shall have restricted 
voting power, for example, that it shall be entitled only to a 
minority representation on the board of directors. Since the 
holders of the common stock can receive no profit until the 
preferential dividend shall have been paid, it is often deemed 



CORPORATIONS. 



197 



just to give them the management of the corporation, so that 
they may have fullest opportunity to make a profit for them- 
selves as well as for the holders of preferred shares. 

One who owns or controls one share more than half of the 
issued stock of a corporation can control the policy of the cor- 
poration. He can choose at least a majority of the board of 
directors, and, in states where the cumulative voting law is not 
in force, he can elect the entire board. As a corporation's 
business is managed by its board of directors and that board's 
agents, and not by its stockholders, control of the board is 
control of the company. 

400. Cumulative Voting. — By statute in a number of the 
states, the holders of less than half the stock of a corporation 
can, by concerted action, elect a minority of the directors. In 
such states, the whole number of directors must be balloted 
upon at one time. Each stockholder may cast as many votes 
as he has shares for each candidate, or he may accumulate all 
of his votes upon one candidate, or he may divide them among 
several candidates. For example, suppose a corporation to 
have 1,000 shares issued, of which A controls 501 and B 499. 
Suppose that 5 directors are to be chosen. The vote is to be 
by ballot and the 5 persons receiving the greatest number of 
votes will be elected. A has 501 votes for each candidate, or 
2,505 to cumulate and distribute. B has 499 votes for each 
candidate, or 2,495 votes to cumulate and distribute. 

Now if A were to cast 501 votes for each of 5 persons and 
if B were to cumulate his votes equally upon 4 persons (623 
votes each) B's four candidates would be elected. But A will 
not do this. Nor will he cumulate his votes upon 4 persons, 
for, in that event, if B cumulated upon 3, B's 3 candidates 
would be elected, since A can cast only 626 votes for each of 4 
persons while B can cast 831 for each of 3 persons. A will 
cumulate his votes upon 3 persons and B will cumulate his votes 
upon 2 persons, A casting 835 votes for each of his 3 candidates 
and B casting 1,247 votes for each of his two candidates, 
whereby A will elect a majority and B a minority of the board. 



I98 PRACTICAL LAW. 

401. Proxies.— Shares may be voted by the holder thereof, 
either in person or by proxy. A proxy is merely a power of 
attorney conferring authority upon an agent to vote the shares 
of the principal. Such an authority may be revoked at any 
time, unless coupled with an interest. It may be conferred 
upon any person who is capable of being an agent. The agent 
need not be himself a stockholder. The following is a common 
form of proxy : — 

PROXY. 

I hereby appoint and constitute John Doe, of Detroit, Michigan, 
my true and lawful agent and attorney, for me and in my name, place 
and stead, to vote upon all shares of stock of The American Wheel 
Manufacturing Company, upon which I am or shall then be entitled to 
vote, upon all matters of every nature coming before that certain annual 
stockholders' meeting of said corporation called to be held at the office 
of said corporation in the city of Detroit, Michigan, on the 28th day of 
February, 1906, at the hour of 3:30 o'clock p. m., and at all adjourned 
sessions, if any, of said meeting, hereby ratifying and confirming all 
that he, my said agent and attorney, may do by virtue hereof, as fully 
and to the same extent as though such actions were performed by me 
personally. 

Richard Roe. 

Dated: February 26, 1906. 

402. Transfers of Stock. — The by-laws of corporations 
usually provide that the stock shall be transferable upon the 
books of the company only. This provision does not invalidate 
transfers made by mere indorsement and delivery. In other 
words, the owner of stock, notwithstanding the by-laws, may 
transfer his title by merely indorsing his certificate and deliver- 
ing it to his transferee. 

The purpose of by-laws requiring transfers to be made upon 
the books of the corporation is to enable the corporation to at 
all times know who are its stockholders. It has a right to rely 
upon its records upon this point. For example, if the corpora- 
tion pays a dividend to A, the registered holder, without notice 
that A had previously transferred his shares to B, B cannot 
recover the dividend from the corporation. 



CORPORATIONS. 199 

Every corporation should keep a transfer book in which 
each transfer of stock should be entered. Transfers are made 
by the transferor indorsing an assignment upon the stock cer- 
tificate and surrendering the certificate to the company for re- 
issue pursuant to the terms of the transfer. The surrender 
certificate should be cancelled by the company and retained. In 
small companies it is a common and commendable practise to 
attach the surrendered certificate to the stub of the stock cer- 
tificate book from which it was originally taken. This method 
preserves a record of the transaction and prevents the misplace- 
ment of the surrendered certificates. 

One who is the bona fide transferee of stock is entitled to 
have his shares transferred in regular form upon the books 
of the company, and the officers thereof have no right to deny 
him this privilege through fear that his ownership of the stock 
may be detrimental to the interests of the company. 

Illustration. — Rice acquired six shares of Standard Oil Trust 
stock. The management of the Trust believed Rice to be hostile to 
it, and declined to enter the transfer of the shares acquired by Rice 
upon the books of the company. Rice brought an action to compel 
transfer and the New York Court of Appeals sustained his right 
thereto. 

George Rice v. John D. Rockefeller et al, 134 N. Y., 174. 

403. Powers and Duties of Officers. — The officers of a 
corporation consist primarily of a board of directors. This 
board usually elects from its own number a president, vice- 
president, secretary and a treasurer. It may also appoint such 
other agents as the purposes of the corporation require. Fre- 
quently the directors appoint a superintendent, a general man- 
ager and legal counsel. 

404. Directors. — In general, the directors of a corporation 
are charged with the management of the property and affairs 
of the company. A director, as such, has no more authority 
than any other stockholder, except during a session of the board 
duly convened. Even a majority of the board of directors have 
no power to bind the company by their action, except by means 



200 PRACTICAL LAW. 

of motions and resolutions passed at a session of the board. 
Directors or other persons may, however, be given authority as 
agents to bind the company by their acts. The agent of a 
corporation stands upon the same footing as the agent of a 
private individual. Thus, when a corporation permits an em- 
ployee to notoriously and openly transact its general business, 
the corporation can not deny that such agent had authority to 
do the acts which it has without objection permitted him to 
perform. 

405. President. — The president of a corporation, by the 
mere fact of holding that office, has no greater power than any 
other director, except as such power is delegated to him by the 
charter, the by-laws, or the acts of the board of directors. 
Proportionately as these powers conferred are broad or limited, 
he will find himself ranking anywhere from a mere figure-head 
to an almost absolute dictator. However, when he exceeds his 
authority the corporation is not bound by his acts. 

406. Vice-President. — In general, the vice-president of a 
corporation has no special powers when the president is present. 
But when the president is absent or disqualified, the vice-presi- 
dent succeeds for the time being to all of the powers of the 
president. 

407. Secretary. — The secretary of a corporation is the 
keeper of the records of its meetings. These records should 
be preserved fully and with care. When properly kept, they 
are the memory of the corporation. All motions and resolutions 
should be entered thereupon and the first act of each meeting 
should be the reading, correction and adoption of the minutes 
of the last preceding meeting. The secretary may have 
delegated to him such other duties as the board of directors 
designate, or as the charter or by-laws provide. 

408. Treasurer. — The treasurer is the custodian of the 
corporate funds. These he should keep in a depository selected 
by the board of directors. It is quite customary to place the 



201 PRACTICAL LAW. 

treasurer under bond for the faithful performance of the duties 
of his office and for prompt surrender to his successor in office 
of all books and property incident thereto. 

The treasurer should keep an accurate record of all receipts 
and disbursements. Wherever it is practicable, disbursements, 
even of small sums, should be evidenced by proper vouchers 
which should be carefully preserved. It is well to have the 
books of the treasurer audited by a disinterested committee, or 
by an expert accountant, at least once in each year. This 
affords protection to the treasurer as well as to the company, 
and is a practise strongly commended. 

409. Salaries of Officers. — The directors, as such, are not 
entitled to salary in the absence of an express provision therefor 
by by-laws or charter. A director may, however, become en- 
titled to salary by reason of special services rendered. Thus 
it is perfectly proper to provide that the president, secretary, 
treasurer, manager and attorney shall have a fixed salary. It 
is also proper to provide that the directors shall be given com- 
pensation for attendance upon the meetings of the board. But, 
in the absence of any such provision, there is no implied con- 
tract on the part of the corporation to pay directors, as such, 
for their services. Neither is there an implied contract to pay 
the officers of the company for ordinary services rendered in 
the discharge of the duties of their respective offices. But, if 
an express contract to pay is made, it will be binding. 

Salaries voted by directors to themselves, or fixed by those 
in control of the corporation to the detriment of the minority 
stockholders will generallv be held illegal if it appears that such 
salaries are excessive. 

410. Annual Reports. — Under the laws of most states, 
corporations are required to file with some state officer an 
annual report setting forth certain information designed for 
the benefit of the state and the public at large. Penalties for 
failure to file such reports are usually imposed. Since the law 
does not favor penalties, the state must do everything required 
on its part in order to charge the corporation, its officers and 



202 PRACTICAL LAW. 

t 

stockholders with liability upon default. It is generally pro- 
vided that a corporation which fails to perform the duties 
required by the state, or which violates its charter, may have 
its charter cancelled by the state. 

411. Receivers. — When a corporation has become insolvent, 
or is being grossly mismanaged, it is generally possible for its 
stockholders, its creditors, or its directors to cause the com- 
pany to be placed in the hands of a receiver. The receiver is 
merely the agent of the court for the purpose of managing the 
company's business with a view to correcting its defects, if 
possible, and again restoring it to its stockholders. If correc- 
tion is found impossible, the receiver winds up the affairs of 
the concern, collects its assests and distributes the same to its 
creditors. If funds are left after the payment of creditors and 
all expenses of the receiver's administration, these funds are 
divided ratably among the stockholders, usually with a prefer- 
ence to the holders of preferred stock, if any there are. 

412. Dissolution. — A corporation may usually be dissolved 
by consent of its stockholders. When a corporation's charter 
expires, the company usually has the privilege of either reor- 
ganizing or going into liquidation. If the latter course is 
adopted, the assets of the concern are sold, its debts and ex- 
penses of administration are paid, and the net residue, if any, 
is divided among the stockholders according to their respective 
holdings. Upon dissolution, holders of preferred shares must, 
usually, be paid the par value of their stock, plus accumulated 
dividends due, before any payment can be made to the holders 
of common stock. 



TABLE A 



Statute of Frauds. 

Contracts for the purchase of personal property exceeding 
in value the amounts herein specified must be in writing, unless 
(a) the property is wholly or partly delivered to the purchaser, 
or (b) earnest money is paid to bind the bargain, or (c) all or 
a part of the purchase price is paid. 

States. 



Ala. 


Statute not in force 


Ari. 


Any value. 


Ark. 


$30. 


Cal. 


$200. 


Colo. 


$50. 


Conn. 


$50. 


D. C. 


$50. 


Fla. 


Any value. 


Ga. 


$50. 


Idaho 


$200. 


111. 


Statute not in force 


Ind. 


$50. 


Iowa 


Any value. 


Kan. 


Statute not in force. 


Ky. 


Statute not in force. 


La. 


$500. 


Maine 


$30. 


Md. 


$50. 


Mass. 


$50. 


Mich. 


$50. 


Minn. 


$50. 


Miss. 


$50. 


Mo. 


$30. 


Mon. 


$200. 



203 



204 PRACTICAL LAW. 



Neb. 


$50. 




Nev. 


$50. 




N. H. 


$33. 




N.J. 


$30. 




N. M. 


$50. 




N. Y. 


$50. 




N. C 


Statute 


not in force. 


N. D 


$50. 




Ohio. 


Statute 


not in force. 


Okla. 


$50. 




Ore. 


$50. 




Penn. 


Statute 


not in force. 


R. I. 


Statute 


not in force. 


S. C. 


$50. 




S. D. 


$50. 




Tenn. 


Statute not in force. 


Texas 
Utah 

Vt. 


Statute 

$200. 

$40. 


not in force. 


Va. 


Any value. 


Wash. 


$50. 




W. V. 


Statute 


not in force. 


Wis. 


$50. 




Wyo. 


$50. 





TABLE B. 



Contractual Powers of Married Women. 



States. 



Can a married woman become a sole trader, and is 
she suable at law for debts contracted as such the 
same as if single? 



Ala. 

Ariz. 

Ark. 

Cal. 

Colo. 

Conn. 

Del. 

D. C. 

Fla. 

Ga. 

Idaho. 

111. 

Ind. 

Ind. Ty. 

Iowa. 

Kan. 

Ky. 

La. 

Maine. 
Md. 

Mass. 



Yes, if declaration is filed in Probate Court with 
husband's consent. 

Yes. 

Yes. 

Yes, if she obtain permit from Superior Court. 

Yes. 

Yes. 

Yes. 

Yes. 

Yes, if she obtain leave from Circuit Court. 
Cannot contract with husband. 

Yes, except as surety and for debt of husband. 

Yes, by decree of District Court. 

Yes, but cannot form co-partnership without hus- 
band's consent. 

Yes, except as surety. Husband must join in mort- 
gage or deed of land. 

Yes. Cannot become a surety. 

Yes. 

Yes. 

Yes. Cannot become a surety. 

Yes, if she carries on separate business from hus- 
band. 

Yes. 

Yes, if she has property acquired by her own labor 
and contracts with reference to her. 

Yes, but she should file certificate that she is doing 
business on her separate account. 

205 



206 PRACTICAL LAW. 

Mich. Yes, but cannot be a surety for or partner with her 

husband. 
Minn. Yes, but she cannot convey land or lease it for more 

than one year without husband joining. 
Miss. Yes, but husband must join in conveyance of home- 

stead 
Mo. Yes. 

Mont. Yes, under certain conditions. 

Neb. Yes, with certain qualifications. 

Nev. Yes, if declared a sole trader by order of Court. 

N. H. Yes, but cannot be surety for husband. 

N. J. Yes, except as accommodation indorser, guarantor 

or surety. 
New Mex. Yes. 

N. Y. Yes. 

N. C. Yes, by entering herself as such in Registrar's office 

where she proposes to do business. 
N. D. Yes. 

Ohio. Yes. 

Okla. Yes. 

Ore. Yes. 

Pa. Yes. 

R. I. Yes. 

S. C Yes. 

S. D. Yes. 

Tenn. Yes. 

Texas. Yes, but cannot contract as partner or buy on credit. 

Her profits are liable for husband's debt. 
Utah. Yes. 

Vt. Yes, except with husband. 

Va. Yes. 

Wash. Yes. 

W. V. Yes, but she cannot be partner with husband. 

Wis. Yes, but executions on judgments against her must 

be satisfied out of her separate estate. 
Wyo. Yes. 



TABLE C. 



Interest and Usury. 



RATE OF INTEREST. 


States 


Legal 
Rate 
Per 
Cent 


Limit 
Allowed 

by 
Contract. 


Statutory Penalty for Usury. 


Ala. 


8 


8 


Forfeiture of interest. 


Ariz. 


6 


No limit 


No penalty. 


Ark. 


6 


10 


Forfeiture of debt. 


Cal. 

Colo. 

Conn. 


7 
8 
6 


No limit 
No limit 
No limit 


No penalty. 
No penalty. 
No penalty. 


Del. 


6 


6 


Forfeiture of sum. 


D. C. 


6 


6 


Forfeiture of interest. 


Fla. 


8 


10 


Forfeiture of interest. 


Ga. 


7 


8 


Forfeiture of excess above legal rate. 


Idaho 


7 


12 


Forfeiture of 10 per cent of principal. 


Illinois 


5 


7 


Forfeiture of interest. 


Ind. 


6 


8 


Forfeiture of interest over 6 per cent. 


Ind. Ty. 


6 


8 


Forfeiture of debt. 


Iowa 


6 


8 


Forfeiture of interest and costs of suit. 


Kan. 


6 


10 


Forfeiture of double amount of usurious 
interest. 


Ky. 


6 


6 


Forfeiture of excess interest. 


La. 


5 


8 


Forfeiture of interest. 


Maine 


6 


No limit 


No penalty. 


Md. 


6 


6 


Forfeiture of excess interest. 


Mass. 


6 


No limit 


No penalty. 


Mich. 


5 


7 


Forfeiture of all interest. 


Minn. 


6 


10 


Forfeiture of debt and interest. 



207 



208 



PRACTICAL LAW. 
Interest and Usury,— Continued. 





Legal 


Limit 




States 


Rate 
Per 


Allowed 
by 


Statutory Penalty for Usury. 




Cent. 


Contract. 




Miss. 


6 


10 


Forfeiture of interest. 


Mo. 


6 


8 


All payments in excess of legal rate 
should be credited as payment on prin- 
cipal ; mortgages or other liens given 
to secure usurious loans void. 


Mont. 


8 


No limit 


No penalty. 


Neb. 


7 


10 


Forfeiture of interest. 


Nev. 


7 


No limit 


No penalty. 


N. H. 


6 


6 


Forfeiture of three times excess of in- 
terest. 


N.J. 


6 


6 


Forfeiture of interest and costs. 


N. M. 


6 


12 


Forfeiture of double amount of all in- 
terest. 


N. Y. 


6 


6 


Forfeiture of debt and interest. 


N. C. 


6 


6 


Forfeiture of interest. 


N. D. 


7 


12 


Forfeiture of all interest. 


Ohio 


6 


8 


Forfeiture of excess above 6 per cent. 


Okla. 


7 


12 


Forfeiture of interest. 


Ore. 


6 


10 


Forfeiture of principal and interest. 


Penna. 


6 


6 


Forfeiture of excess interest. 


R. I. 


6 


No limit 


No penalty. 


S. C. 


7 


8 


Forfeiture of interest, and if paid can 
bring separate action for double amount 
of excess interest. 


S. D. 


7 


12 


Forfeiture of interest; usury a misde- 
meanor. 


Tenn. 


6 


6 


Forfeiture of excess of interest. Where 
usury appears on face of instrument, 
neither principal nor interest collecti- 
ble. 


Texas 


6 


10 per ce 


Forfeiture of interest. 


Utah 


8 


No limit 


No penalty. 


Vt. 


6 


6 


Forfeiture of excess interest. 


Va. 


6 


6 


Forfeiture of interest. 


Wash. 


6 


12 


Forfeiture of double the accrued interest 
if paid. 


W. Va. 


6 


6 


Forfeiture of excess interest. 


Wis. 


6 


10 


Treble amount of usurious interest paid 
can be recovered. 


Wyo. 


8 


12 


Forfeiture of interest. 



TABLE D 



Statutes of Limitations. 

Claims are barred in the several states after the expiration 
of the following statutory periods : — 



States 


On Open Accts. 


On Notes and Bills of Exchange. 


Ala. 




3 years 


6 


years ; under seal, 10 years. 


Ariz. 




3 years 


4 


years. 


Ark. 




3 years 


5 


years. 


Cal. 




2 years 


2 


years; 4 years when executed within 
State. 


Colo. 




6 years 


6 


years. 


Conn. 




6 years 


Non-negotiable paper, 17 years; others 6 










years. 


Del. 




3 years 


6 


years. 


D. C. 




3 years 


3 


years. 


Fla. 




2 years 


5 


years. 


Ga. 




4 years 


6 


years; under seal, 20 years. 


Idaho 




4 years 


5 


years. 


Ilk 




5 years 


10 


years. 


Ind. 




6 years 


10 


years. 


Ind. Ty. 




3 years 


5 


years. 


Iowa. 




5 years 


10 


years. 


Kan. 




3 years 


5 


years. 


Ky. 




5 years 


15 


years on notes ; 5 years on accepted 




Save 


between 




bills. 




merchant and 








consumer, 








then 


2 years. 






La. 




3 years 


5 


years. 


Maine. 




6 years 


6 


years. 


Md. 




3 years 


3 


years; 12 years if sealed. 



14 



209 



210 



PRACTICAL LAW. 



Statutes of Limitations— Continued. 



States 


On Open Accts. 


On Notes and Bills of Exchange 


Mass. 


6 years 


6 


years. 




Mich. 


6 years 


6 


years ; under - seal 10 years. 




Minn. 


6 years 


6 


years. 




Miss. 


3 years 


6 


years. 




Mo. 


5 years 


10 


years. 




Mont. 


5 years 


8 


years. 




Neb. 


4 years 


5 


years. 




Nev. 


4 years 


6 


years. 




N. H. 


6 years 


6 


years; when secured by mortgage, 
years. 


20 


N. J. 


6 years 


6 


years. 




N. M. 


4 years 


6 


years. 




N. Y. 


6 years 


Sealed instruments, 20 years; others 


6 








years. 




N. C. 


3 years 


Sealed instruments, 10 years ; others 


- 3 








years. 




N. D. 


6 years 


6 


years. 




Ohio. 


6 years 


15 


years. 




Okla. 


3 years 


5 


years. 




Ore. 


6 years 


Sealed instruments, 10 years ; others 


6 








years. 




Penna. 


6 years 


6 


years. 




R. I. 


6 years 


6 


years. 




S. C. 


6 years 


Sealed notes and bonds, 20 years; other 








writings, 6 years. 




S. D. 


6 years 


Sealed instruments, 20 years; others 


6 




6 years 




years. 




Tenn. 


2 years 


6 


years. 




Texas. 


4 years 


4 


years. 




Utah. 


6 years 


6 


years. 




Vt. 




6 


years ; on witnessed notes, 14 years. 




Va. 


3 years 


5 


years ; under seal 10 years. 




Wash. 


3 years 


6 


years. 




W. Va. 


5 years 


10 


years. 




Wis. 


6 years 


6 


years. 




Wyo. 


8 years 


5 


years. 





INDEX 



THE NUMBERS GIVEN REFER TO SECTIONS. 



Acceptance 37, 256 

Accord and satisfaction 365 

Acts and forbearances 74 

Acts of bankruptcy 379 

Adverse possession 26 

Agents 120 to 136 

authority of 124 

disregard of instructions 136 

duty of 126 

general agents 122 

kinds of 121 

liability of 128 

power of attorney 124 

ratification of unauthorized act 125 

signature of 55, 129 

special agents 123 

termination of authority 130 to 135 

Agreement 27, 31, 33, 34, 35 

Alteration 116 

Alteration, material 313 

Annual report of corporations 410 

Application of payments 366, 374 

Assignment for benefit of creditors 376 

Assignment of lease 225 

Assignment of mortgage 342 

Attachment 350 

Bank 226 

as collection agent 243 

cashier 240 

directors of 241, 242 

president of 238 

vice president of 239 

Bankruptcy 377 

acts of 379 

211 



212 PRACTICAL LAW. 

Bankruptcy 

debts first paid 382 

discharge in 381 

insolvency 380 

who may enter 378 

use of 383 

Bills of exchange 252 

acceptance of 256 

dishonor of 258 

issue of 254 

maturity of 257 

notice of dishonor 260 

parties to 255 

presentation of 256 

protest 259 

settlement upon 262 

want of notice 261 

Bill of lading 174, 175, 244 

Bill of sale 180, 341 

Bonus 316 

Breach of contract 110, 111, 112 

By-laws 396 

Cancelation 102 

Cancelation of orders 39 

Capital stock and shares 388 

Capture by enemy 22 

Care in selecting servants 155 

Carriers 

act of God 166 

discrimination in rates 176 

kinds of 163 

liabilities of 164 to 172 

lien of 349 

limitation of liability 169 

loss by 167 

loss by connecting line 170 

loss from natural causes 168 

receipts 174 

rules 173 

stipulation as to value 172 

stoppage in transitu 177 

Cautions 8 

Charter 386 

Checks 

certified 231 



INDEX. 213 

Checks 

forged 232 

not assignment 230 

notes as 236 

presentation of 228 

returned 233 

stoppage of payment 229 

Clerical errors 90 

Collections 243 

Collection of debts 367 

outlawed claims 369 

procedure in 368 

Commercial paper 244 

Compromise 364 

Corporations 384 to 412 

annual reports 410 

by-laws 396 

capital stock 388 

charter of 386 

compared with partnerships 385 

cumulative voting in 400 

directors 404 

dissolution of 412 

duration 393 

incorporators 394 

kinds of stock 398 

location of place of business 390 

payment of stock 389 

powers and duties of officers 403 

powers and purposes 391 

preliminary investigation of 397 

president 405 

proxies 401 

receivers - 411 

recording articles of association 395 

salaried officers 409 

secretary 407 

shares of 388 

subscription to stock 392 

transfers of stock in 402 

treasurer 408 

vice president v 406 

voting powers of stock holders 399 

Corporate stock, pledges of 344 

Consideration 69 to 76 



214 PRACTICAL LAW. 

Consignments 187 

Contracts 

acceptance 37 

agreement 33, 34, 35 

alteration 116 

breach of '. . 110, 111, 112 

cancelation 39, 102 

certainty 77 

clerical errors in 90 

construction of 89 to 97 

consideration for 69 to 76 

denned 27 

delivery 51 

disaffirmance 59, 60 

discharge in bankruptcy 118 

enforcible 28, 32 

false representation 105, 106, 107 

forgery of 117 

form 31, 41, 43 

for sale of land 47 

for sale of standing timber 48 

for sale of personal property 49 

for services 50 

for necessaries 58, 64, 68 

fraud 61, 63 

fraud in 104 

gambling contracts 85 

illegal 78, 79, 80 

immoral 88 

importance of 27 

impossibility of performance 100 

improperly expressed 43 

incompetent parties 56 

in consideration of marriage 46 

in restraint of trade 82 

in writing 52 to 55 

land 201, 202 

legally binding • 28, 32 

lunatics and drunken persons 62 

marriage brokerage contracts 86 

merger 115 

mistake in 108, 109 

not to be performed within one year 44 

offer to make 36, 40 

oral 27,30 



INDEX. 2 15 

Contracts 

performance 99 

performed 51 

rescission 103 

revocation 38 

statute of limitation 119 

stifling competition , 83 

substitution 101 

termination 98 to 113 

to influence public officials 84 

to pay debt of another 45 

usurious contracts 87 

written 30, 95, 96 

Cumulative voting 400 

Damages 14 

Dartmouth College Case 6 

Deeds 205 

consideration 210 

delivery 212 

description of land in 206 

estates by entireties 214 

execution 211 

execution in blank 215 

quit claim 209 

recorded 216 

unrecorded 213 

warranty 208 

Delivery of deed 212 

Deposits, general 227 

special 234 

Description 192 

Description of land 206 

Directors 404 

liabilities of : 242 

power of 241 

Discharge 161 

Discharge in bankruptcy 118, 381 

Discrimination in rates 176 

Dishonor 258, 270 

Dissolution of corporations 412 

Due care 7, 9, 10 

Duress 56, 63, 66 

Estates by entireties 214 

Eviction of tentant 221, 223 

Exemptions 353 



2l6 PRACTICAL LAW. 

False representations 105 

Forcible felonies 18 

Foreclosure 332 

Foreclosure of mortgage 342 

Forfeiture under land contracts 204 

Forgery 117 

Form 

bill of exchange 254 

bill of sale 180 

by-laws 396 

certificate of protest 259 

indorsements 265, 291 

land contract 201 

land option 199 

lease 217 

notice of non-payment 260 

notice to quit 222 

of proxy 401 

of warranty deed 208 

promissory note 263 

real estate mortgage 326 

title note 188 

Fraud 104 

Fraud in sales 196 

Gambling contracts 85 

Garnishment 351 

Guarantors 268, 312 

Guaranty 323 

Good considerations 71 

Holder in due course 247 to 250 

Indemnity bonds 322 

Indorsement 321 

conditional 291 

forms of 291 

in blank 264, 291 

in full 265 

liability upon 290 

qualified , 291 

restrictive 269 s 291 

special 291 

without recourse 267, 292 

with waiver 266 

Indorsers 

discharge of 210 

liability of '. 290 



INDEX. 



217 



Indorsers 

waiver of 266, 304, 305 

Infants 56j 57 

Insolvency 330 

Inspection of goods 189 

Interest, payment in advance 317 

Interest, Table C, Appendix 

Judgment liens 352 

Land contracts 200 

forfeiture 204 

recording 203 

Land options 198 

Landlord, duties of 218, 219, 220 

Latent defects in goods 190 

Law 

common law 4 

confusion of 5 

constitutionality 6 

contracts in violation of 79 to 88 

harmony in 5 

ignorance of 1 

natural justice 4 

negotiable instruments law 5 

of place 97 

purpose of 2 

statute law 5 

study of 3 

unconstitutional 6 

Lease, assignment of 225 

renewal of 219 

Legal tender 355 

Liens 346 

by attachment 350 

by garnishment 351 

by judgment 352 

carriers' 349 

vendors 347 

workmen's 348 

Limitation 113 

Loans 318 

Lunatics 56, 62, 65 

Marriage brokerage contracts 86 

Marriage, contracts in consideration of 46 

Married women 56, 67 

Powers of, Table B, Appendix 



2l8 PRACTICAL LAW. 

Master, duty of 151 to 159 

Memorandum of contract 53 to 55 

Merger 115 

Mistake 108, 109 

Mortgages 324 

assignment of 342 

bills of sale operating as 341 

chattels 327 

deeds operating as 339 

deficit and surplus 334 

description of property in 331 

dual 338 

foreclosure .' 332 

foreclosure sale 333 

permission to sell 329 

real estate 325, 326 

redemption 336 

rights of purchaser 335 

securing note 330 

security clause 328 

subrogation 337 

Mutual promises 73 

Name of corporation 387 

Necessaries 58, 64, 68 

Negligence 10, 11, 13 

contributory 13 

in executing written instruments 15 

in filling blanks 15 

of carriers 169, 171 

Negotiable instruments 245 

acceptance of 297 to 300 

acceptance for honor 302 

additional provisions in 280 

advantages of 246 

antedating 281 

blanks in 15, 282 

certainty 279 

classes of 252, 253 

discharge of drawers and indorsers 310 

dishonor of 293 

drawee of ; 286 

drawer of 285 

forbearance in 276 

forgery of 314 

holder of in due course 247 



INDEX. 219 

Negotiable instruments 

interest upon 317 

law 251 

material alteration of 313 

maturity 277 

negotiation of 283 

parties to ,284 

payable in money 275 

payee of 288 

presentment of 294, 296 

presentment for payment 303, 306, 307 

protest 308, 309 

postdating 281 

qualified acceptance of 301 

reason for protest 250 

signing 274 

transferee of in due course 248, 249 

transfer of 289 

usury in 315, 316 

waiver of 304, 305 

when writings are 273 

words of negotiability 278 

Negotiable Instruments Law 5, 251 

Notice to quit 222 

Offer 36 

Opinion 106, 107 

Overdrafts 237 

Partners ! 137 to 149 

classes of 138 

compensation of 147 

good faith of 144 

misappropriation by 142 

sharing profit and loss 146 

suits by 145 

Partnerships 

creation of 149 

dissolution of 148, 149 

kinds of 140, 141, 143 

Parties incompetent 56 

Payment 51 r 360 

accord and satisfaction 365 

application of 366, 374 

by compromise 364 

notes, checks and orders as 362 

to wrong person 361 



220 PRACTICAL LAW. 

Payment 

voluntary 363 

Personal property, contracts for sale of 49 

Pledges 343 

foreclosure of 345 

of corporate stock 344 

Police power 22 

Powers and purposes of corporations 391 

Prescription 25 

Promissory notes 253 

collection of 271 

issue of 263 

surety upon 272 

Property 

adverse possession 26 

capture by enemy 23 

deprivation of 21 

destruction of 22 

kinds of 16 

lost and found 20 

personal 16 

possession of 18, 19 

prescriptive rights 25 

real estate 16 

right to defend 18 

right to use 17 

seizure under process 24 

Protest 259 

Proximate cause 14 

Public officials, contracts to influence 84 

Public policy, contracts contrary to 80 

Quit claim deed 209 

Rescission 103 

Reasonable time 94 

Receivers 411 

Recording deeds 216 

Recording land contract 203 

Renewal of lease 219 

Rent 221 

Repairs on leased property 220 

Replevin 19 

Reservation of title 188 

Restraint of trade, contracts in 82 

Returned checks 233 

Revocation 38 



INDEX. 221 

Sale 178 to 196 

bill of 180 

by sample 195 

conditional 185 to 188 

description in 192 

delivery 186 

for cash 183 

fraud in 196 

inspection of goods •. . . 189 

latent defects 190 

on consignment 187 

on credit 184 

passing of title 182 to 188 

quality of goods 191 

requisites of 181 

reservation of title 188 

warranty of fitness 193, 194 

Satisfaction 92 

Security 319 

Seizure under process 24 

Servant 

contributory negligence of 158 

discharge of 161, 162 

duty of 160 

payment of 159 

risks assumed by 156, 157 

Services, contracts for 50 

Signing by agent 55 

Statute of frauds, Table A, Appendix 
Statutes of limitations, Table D, Appendix 

Statute of limitation 119, 370 to 375 

renewal of barred debt 373, 374, 375 

suspension of 371 

when operative 370 

withdraws remedy 372 

Statute law 5 

Stifling comeptition, contracts for 83 

Stoppage in transitu 177 

Substitution 101 

Sureties 272, 311 

Suretyship 320 

Tender 354 

admits debts 359 

amount 357 

kept open 358 



222 PRACTICAL LAW. 

Tender 

obj ection to 356 

Title 179 

Transfer of stock 202 

Trover 19 

Usury, Table C, Appendix 

Valuable consideration 76 

Vendee 178 

Vendor 178 

Vendors' liens 347 

Warehouse receipts 244 

Warranty deed 308 

Warranty of fitness 193, 194 

of quality , 195 

Workmen's liens 348 

Wrongful discharge 162 



>0b 



